Not all life insurance is created equal. In fact, each product has its own benefits and drawbacks. Understanding the difference is the key to your satisfaction with your purchase.
The problem most people run into when looking for life insurance is they don’t understand how each product will perform; and each one performs very differently.
What makes the life product right for you is how it fits your needs.
Term Life Explained
Term life insurance is a great choice for a lot of people.
With term, you purchase life insurance for a specific amount of time, or term.
Terms typically run 10, 20 and 30 years in length. Most of the time with term policies, you will have to fill out an application, release medical records, and possibly do a paramedical exam.
The insurance company will then take the information from those records and issue you a premium based upon those factors.
Sometimes on the bigger life policies, you will also have a phone interview with an underwriter as well.
As a whole, just remember ALL life insurance is cheaper the younger you purchase it and the healthier you are.
Sorry guys, but it’s also cheaper for women than it is for you and me at any age.
Let’s talk about some specific benefits and drawbacks to term policies.
Benefit One: Affordable
First term life is popular because it’s very affordable.
You’re talking about a few cents in premium for thousands of dollars of coverage per month.
That means that you can afford to cover your family for hundreds of thousands to even millions of dollars for a fraction of the cost of other life insurance products.
Of course, the longer the term or the higher the amount, the more it will cost you. Also the younger and healthier you are when you buy it, the more affordable the coverage will be.
A lot of the commercials you see on TV that say, “I got a half a million dollars in coverage for only $11.00 a month!”
Well, that’s a term policy they are selling you.
And it’s probably a 10-year term, and they’re quoting you the very best medical rating for a 27-year-old woman.
It’s not exactly bait and switch because you can get that rating as long as you qualify, but it’s not what a majority of people out there will be eligible for.
Any way you slice it, term life insurance will be the greatest dollar amount of coverage for the least amount of premium.
Notice I didn’t say that it will be the best value. It might be the cheapest, but the value depends more on your needs than it does what you spend on it.
Benefit Two: Coverage When You Most Need It
Another benefit is the length of terms allows you to be covered with lots of life insurance for the typical amount of time most people need the most coverage.
Our largest expenses and loans come often in the middle of our lives. For example: how long is a typical mortgage? 15 or 30 years right? Well you can set up your life insurance to cover you for the length of your mortgage.
How long do you typically have to support your kids? Twenty years or so, right?
The term policies are great for covering that time in your life when you’re taking out loans, paying to raise kids, paying for college and weddings, etc.
After all those things have passed, expenses tend to lessen. Plus we’ve had time to save and get things paid off. So the 20-and 30-year terms are designed to cover this specific period in life, say from around age 20-60.
The Downside
Term life is like leasing a car, rather than buying a car.
You never own it.
Oh, you still get all the benefits that come with owning it, but ONLY for a specific amount of time.
Once that term runs out, you don’t have any life insurance coverage at all. It’s gone, and once it’s gone, and now you either have to sign up for another term at a higher premium amount (because now you’re older than you were when you started the first term) or go without life insurance.
Another downside is term life doesn’t build cash value.
That means you could pay in 30 years of premiums, and in the end, you have nothing to show for it.
In fact, that’s what the insurance companies are planning on. Statistically speaking less than 3% of term policies pay out.
That’s why the insurance companies can offer them to you for such a low premium.
They’re betting the policy runs out before you do!
Adding Endorsements
Finally, make sure you look at the endorsements that you can add to your term policies.
Many of the better insurance companies offer endorsements such as accidental death and dismemberment, critical illness, and accelerated benefits at either no increase or a slight increase in premium.
Depending on your needs, this might be a good option consider adding these to your term policy.
I’ll try to add another Cris Answers article later where I can talk about these endorsements in more depth, but for right now, if you’ve got any questions, don’t hesitate to call and ask.
