Term Life Insurance: What To Look For When Purchasing
When considering a term life insurance policy, look at:
The Amount of the Death Benefit
Purchase as much death benefit (also called "face amount") as you will forseeably need or can afford. A diagnosis makes you more prone to illnesses in the future which may prevent you from purchasing additional insurance at a later date.
Look for a policy with a term that is long enough to cover you through the entire period when someone may be dependent upon you. Longer term policies may be expensive than shorter term, but the longer term is better "just in case."
Don't forget that if you get to a point where you have a life expectancy of two years or less, you may be able to sell the policy and get money while you are alive. This is known either as a "Viatical Settlement" or a "Senior Settlement." (For information, see Sale Of A Life Insurance Policy.)
If rates are low, as they are now, lock in the rate with a "guaranteed level premium." The rates do not change from year to year.
- Look for a policy which permits you to incrase the amount of the death benefit without a medical exam.
- If the term of the policy you can obtain is shorter than you would like, look for a policy that is convertible into a permanent policy. That way if your need continues, you will be able to convert to a permanent type policy. You can always cancel it in the future when no longer needed.
- Read the fine print to find out if the policy contains provisions that unnecessarily increase the price. For example, there may be a "double indemnity" provision which means the policy will pay two times the face amount if the insured dies accidentally. While the provision is nice to have, the premium could make the policy financially difficult to bear.
The Life Insurance Company's Rating
Life insurance doesn't do you any good if there is no money to pay a claim. It is preferable to only purchase life insurance from a company that has earned the very top financial-strength rating from an independing rating company. For example: consumers can get free ratings at TheStreet.com. See:www.thestreet.com/tsc/ratings/screener.html . You can also ask an insurance broker about a company's ratings by Fitch or Standard and Poors. At Fitch, the preferable rating is AAAq. At Standard and Poors, the preferred rating is AAApi.
NOTE: If an insurance company goes under, each state has a guaranty association which provides some protection. The state may also try to rehabilitate or liquidate the company. If a person dies during this period, the payment of benefits up to state limits may be delayed for months or even for years. To learn more about the situation in your state, contact your state insurance department. Contact information is available at www.naic.org