Term Life Insurance Facts
Nearly everyone needs life insurance. But not everyone can afford to pick and choose the life policy they want without shelling out a lot of money.
Term life insurance overcomes the problem of expensive coverage by offering affordable plans that fit nearly every need and budget.
Essential Facts about Term Life Insurance
#1: It's the simplest, most straightforward type of life plan.
Normally beginning with a physical exam, term life protects families financially following a loved one's death. It pays the recipient of the life insurance funds (beneficiary) the full value of the policy, usually in force from one to 30 years. Most term policies provide no other life benefits.
#2: Term insurance comes in two varieties: level term and decreasing term.
Level term policies pay out the same benefit amount, no matter when the insured perishes during the term of the contract. Almost everyone buys level term coverage these days. Decreasing term pays varied amounts, depending on the point in the policy when death occurs.
#3: Insurers base premiums on age and health at the time the plan begins.
These factors represent the best indicators of death risk to the insurance company. Once set, term life insurance rates usually change only if and when the policy is renewed, but stay constant during the span of time designated.
#4: Some plans may be converted to permanent policies with no further evidence of insurability.
These types of policies are known as "convertible," and cost more than the average term life policy. Find out which term plans are convertible and which are not, as permanent insurance purchased later in life is more expensive.
#5: Smokers pay more than non-smokers.
About 5 million people die of smoking-related illnesses each year, and smokers are more likely to die of certain types of cancer and cardiovascular disease than nonsmokers of similar age. This added risk means higher insurance premiums for smokers, whether they indulge in cigarettes, cigars or marijuana.
#6: Those with illness or medical conditions may need guaranteed-issue coverage.
It costs significantly more to guarantee coverage for sick policyholders, so insurance companies take on additional risk when insuring a person with preexisting medical conditions. However, this type of plan may help those not insurable through other means. It may require a waiting period before treatment is covered, so be sure to get informed before signing on the dotted line.
#7: Insurers often renegotiate rates if health conditions clear following a policy's purchase.
When paying higher premiums due to a preexisting medical condition, inform the insurance company of the change and request lower rates.
#8: If the policy expires without a claim, ask about a "return of premium."
Though it usually costs more, some insurance companies offer this feature to keep customers happy when they come to the end of the term. Ask an agent whether a particular policy qualifies if interested in this characteristic.