If you’re in the life insurance market, you may have been tempted by those ads that say, “For a few dollars a day, you can protect your family with $ 1 million in life insurance!” Sounds great right? These ads often refer to term life insurance. As the name implies, term life insurance provides protection for a limited period of time or term, such as 10, 20, or 30 years.
The concept is pretty simple: If you die while your policy is active, your family will receive a death benefit. But the many types of term insurance and options can be confusing. Is Term Life Insurance Likely To Work For You? Start by asking yourself the following five questions.
- Nobody really wants to talk about life insurance; it sounds expensive and reminds us of our own mortality.
- However, having the right life insurance can give you peace of mind, knowing that your loved ones and beneficiaries will be financially cared for when you pass away.
- Depending on your lifestyle, family structure, and financial position, there are different types of life insurance coverage that can be tailored to meet your particular needs.
1. Why do I want life insurance?
Before buying any type of life insurance, think about why you are buying it. Are you protecting your family in the event of premature death? Have you taken on additional debt that requires you to provide coverage? Looking to leave an inheritance or gift to a charity?
If you want insurance to potentially cover financial obligations that you will have for a long time, possibly for the rest of your life, you may want to consider permanent life insurance. If you are in a cash crisis and have immediate obligations to your family, business partners, or lenders, term insurance can provide a short-term solution.
2. What type of coverage is available?
Most people will have access to at least one of two types of term insurance policies: group or individual.
Group life insurance
Most companies offer their employees some form of term life insurance as an employee benefit. This is called group term insurance because you are receiving protection as part of a larger group. It is usually deducted directly from your paycheck and the only requirement for coverage is to complete a short questionnaire with details of your medical history. These are some of the advantages of group term insurance:
- It is convenient. You can usually enroll in a policy when you accept a new job and enroll in your company’s benefits program. You may also have the opportunity to enroll during your company’s annual enrollment period when you can enroll for other benefits, such as medical or dental insurance or an employer-sponsored retirement plan.
- No medical examination is required. Most group plans do not require a physical exam. A statement of good health, along with a medical history, is usually all that is required to secure coverage.
- Automatic payments. Through payroll deduction, you will hardly feel the financial impact of paying your premiums every month.
Individual life insurance
As the name implies, an individual policy is one in which you apply for coverage on your own. You or a member of your family will own the actual policy. To obtain an individual policy, you will likely have to undergo a medical examination of some kind, provide a detailed medical history, and give the insurance company permission to examine your medical records and conduct a background check on any driving offenses or criminal activity. . . This may seem a bit invasive, but there are great benefits to having an individual life insurance policy.
- It is portable. If you accept a new job at a different company, you don’t have to worry about losing your life insurance protection.
- Levelized premiums. Generally, individual policies can be structured to have level premiums for the life of the policy.
- Flexibility. If you ever want to upgrade or convert your temporary policy to a permanent policy, you may have more options available with an individual policy than with a group plan.
3. What happens if I don’t die?
Ironically, some people who buy term life insurance are upset when they find that if they don’t die, they get nothing in return. If this concerns you, it is important that you understand what will happen to your policy as you near the end of the term.
As you near the end of your policy term, you may have the option to keep your policy. If you do, and have been paying level premiums, you can expect a substantial increase in your premium. So if you’re still healthy at that point in your life and want to keep coverage, it may be better to apply for a new policy.
Maybe you just wanted your policy to cover you as long as you had a mortgage or until your children’s college education was paid for. If that’s the case and you have no other obligations to protect, you may want to let the coverage expire.
4. How can I update my current policy?
Most term policies come with a “conversion privilege.” This essentially allows you to switch from your old term policy to a new permanent policy and continue to pay premiums, which can be higher. This is a great feature that provides flexibility in the future, but because some policies have limitations, you should familiarize yourself with the conversion rules for whatever policy you are considering.
The conversion privilege may be time limited. For example, you may need to convert it before reaching a certain age. Other policies allow conversion for the entire term of the policy. The most generous term policies allow you to convert to any type of permanent policy available, such as whole life, universal life, or variable universal life. Some term policies may require you to convert to one rate, and some companies may not offer all rates, which may limit your options.
5. Where do I buy a policy?
Several online companies offer term insurance policies. These distributors generally focus on finding the policy with the lowest cost based on the personal information you provide.
For a more personalized experience, you might consider seeking a professional. An insurance agent will help you understand the different types of insurance and can answer any questions you may have. You can find one by visiting any of the major company websites or looking in your local phone book, but probably the best way to find a representative is to ask a friend or business associate for a recommendation.
Finally, for group coverage, you can check with your employer. If you are self-employed, you may have access to a group plan through a professional association, or you can even set up a group plan for yourself and your employees.
The bottom line
After going through these five questions, you will be able to decide for yourself if that million dollar coverage offered in the ad is really what you need for yourself and your family. If not, don’t be afraid to overlook it – there are hundreds of policies waiting to give you the peace of mind you’re looking for.