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Buying Affordable Term Life Insurance

How do you buy an affordable term life insurance policy that meets your needs?  The pricing of your policy is based on the amount insured and any riders it includes. Choosing the right insurance policy comes down to deciding on these key features and then shopping for the best rate.

What’s the Difference Between Term and Whole Life?

You can read entire articles just dedicated to this topic. To keep things simple – Term Insurance expires. Typically you can get a policy and lock in the rate for a period of 10,15,20,25, or 30 years. After expiration you may be able to renew the policy but at much higher premiums. Whole Life is a form of permanent insurance. Premiums don’t go up, and as long as you pay the premiums the policy does not expire. People buy term because it’s cheaper and they may only need coverage for a period of time, like 20 or 30 years. Others buy whole life because they want a permanent policy and can afford higher premiums. You can read more about term vs whole life here.

Why buy a term life insurance policy?

Insurance buys you peace of mind.  By buying in a term life insurance policy, you seek to provide a safety net for your family in the event of your death.  A term life policy helps to maintain the present living standard of your family, take care of your mortgage and kids’ college education and any one-time expenses. It can also include a provision for funeral costs and estate taxes.  Once arranged, you must keep the policy current by paying the premiums when they are due.  In the event of your death during the term of the policy, the proceeds are paid out to your designated beneficiary.

If you remain healthy during the term of the policy, there will be no need to cancel the policy. The term life policy will expire at the end of its term after providing a buffer for those critical years.

A whole life insurance policy on the other hand carries a higher premium. It is kept in force throughout your life and is structured differently. A whole life policy has a cash component that is not available in a term life policy. The returns from such a policy depend on the number of years it is held and what securities it is invested in.  A term life policy holder can get a better return by investing the difference between the premiums in a 401(k) plan or other investment account.

The Pros of Term Life Insurance

  1. Term Life Insurance is Cheap

Term Life insurance is the cheapest form of life insurance coverage available. That means that you get more bang for your buck. The same money spent on term coverage will get you much more death benefit than a permanent life insurance policy.

  1. Term Life Insurance is Easy to Purchase

Term Life insurance is not a complicated financial product. That means that its easier for you to both shop for term life and compare term life quotes. With term life insurance you basically need to make just two decisions. First, you need to decide how much coverage you want. Once you know that, you need to decide how long you want coverage for. You can typically get a term life policy for 10,15,20,25, or 30 years. The longer the term period, the higher the monthly premium will be.

  1. Term Life Insurance Covers a Temporary Need

If you feel like you only need coverage for a set period of time, term life insurance is a good choice. For example if you have little kids and want coverage until they are out of college, a 20 or 30 year term policy might be good enough for to fill that temporary coverage. Or if you are 50 years old and want a policy that will cover you until you retire at age 65, a 15 year term policy may be perfect for you.

Cons of Term Life Insurance

  1. Term Life Insurance Expires

Term Life insurance is for a set amount of years. That means that if you purchase a 30-year term policy and you outlive the 30 years, your policy can expire. You do have the option to renew after 30 years, but its most likely that the renewal rate will be unaffordable to you or simply more expensive depending on your health at that time.

  1. Term Life Doesn’t Offer a Return

Term Life insurance is not a savings vehicle. That means that if you do outlive your policy, you don’t get back the money you spent on the policy (unless you have return of premium term life insurance).

If you’re trying to decide between a term and permanent policy, deciding how much coverage you need, why you need the coverage, as well as comparing rates can help you determine what will be best for your family. At Chooseterm.com we can help you compare term life and permanent life insurance policies.

What Kind Of Options of Payouts Are There?

Most term life insurance plans come with a dizzying array of payout options. While some offer obvious advantages for plan beneficiaries, many are structured to favor underwriters.
What Options do I have for Death Benefits?

Lump-Sum Payment

A term life insurance policy may pay its death benefits in one of three ways. If the beneficiary opts to take a  lump-sum payment, the underwriter must pay out the policy’s full face value via check or electronic deposit. Lump-sum payments do not accrue interest: A $200,000 policy will pay out exactly $200,000 upon the death of the insured party.

Although they are not the most common payout option overall, lump-sum payments may be useful for heavily-indebted beneficiaries.

Annuity

If the beneficiary opts to receive the death benefit as an annuity, they may be presented with a staggering menu of choices. No matter how the beneficiary elects to receive their annuity payments, this payout method confers one major advantage: all unpaid benefits accrue interest over time.

Annuity payouts come in several forms. Beneficiaries may receive “life only” payouts, which are calculated according to their life expectancy and include accrued interest, every year until they die. Upon their death, payments terminate and the insurer keeps any balance that remains.

“Period Certain” vs. “Amount Certain” Payout Options

Beneficiaries may receive “period certain” payouts in equal amounts over a fixed period of time, usually ranging from five to 30 years. If the beneficiary dies before the period ends, payments may be transferred to a surviving recipient.

Like “period certain” payouts, “amount certain” benefits pay out in equal amounts until the face value of the original policy has been exhausted. Beneficiaries may specify the amount to be received each year. The payout period’s duration depends entirely upon the size of each installment.

Since they are made up solely of the interest generated by the original policy’s face value, “interest income” payouts are far smaller than other annuity installments. Of course, beneficiaries can elect to receive the full value of the interest-generating principal at any time.

Since they offer a guaranteed stream of income for a multi-year period, annuities are the most common term life insurance payout option. Within this category, “period certain” payouts are among the most popular.

Interest-Bearing Accounts

The majority of term life insurance beneficiaries still opt to receive benefits either in a single payment or as a permanent annuity. However, many insurers now offer  interest-bearing checking accounts  with full check-writing privileges. These enable beneficiaries to exercise complete control over their funds, drawing upon their accounts as much or as little as they see fit. For insurers, they represent a valuable source of investment income.

Term Life Insurance For Couples

A lot of people tend to think that once they get married, they need to combine their life insurance policies or even do away with their old policies and purchase joint life insurance. But this isn’t necessarily the case, and in fact it is recommended that each person purchase his or her own term life insurance policy. There are a variety of reasons for this, which we’ll go over here.

Separate Policies Provide More Options

Each person is able to get coverage from the insurance company of their choice, rather than having to find one that works for both (and with joint policies, you options are limited in terms of companies that offer them). Different insurance providers will offer different rates, so you will be able to each “shop around” (which you can do using the quote tool on this website) and get the best coverage possible based on your individual health histories and life situations. So, if your spouse has a health condition, it will not affect the policy you get.

Premiums Are Cheaper

Since separate insurance policies just cover the individual, the premiums are generally cheaper than they are for joint policies. This is important if money is of concern, as it is for many younger couples that may not have much saved up. This is also more convenient for couples that do not have combined bank accounts.

Separate Policies Benefit Children More Than Joint Policies

When you buy a “joint” policy they are usually a “first-to-die” type of policy. What this means is that if one partner/spouse passes than the death benefit pays out. However the surviving spouse is left without coverage. This is not an ideal situation to be in if you have children as each one of you should have coverage, and with separate policies you will both have you own coverage that doesn’t stop if one of you passes.

Separate Policies Simplify Divorce

It’s something nobody wants to think about, but it is something that needs to be considered. People who are recently married often assume that divorce will never happen to them, but the reality is that things can change, and many couples do end up splitting. If you have separate policies, all you will need to do (if you even want to) is change the beneficiary. This keeps things simple and saves a lot of extra, unnecessary strain.

How Long Does It Take To Be Approved?

A term life insurance policy application generally involves several different steps. How easy or complex these steps are will vary based on the policy itself. The application for a guaranteed-issue policy is much simpler and faster than the application for a policy that requires a medical exam, which has several more steps and may take a considerably longer time to process.

The application is the first step for any type of life insurance policy. This can be completed in as little as one day. A no-medical exam or guaranteed-issue life insurance policy may take from seven to 10 days while a medical exam policy can take up to two months after the application has been completed for the applicant to be accepted.

No Medical Exam Policies

Some no-exam policies require a phone or in-person interview, which may repeat many of the questions already answered on the life insurance application. This interview will usually occur within one to three days of the insurance company’s receipt of the application. Within one to three more days, the policy will be approved, issued and mailed. A guaranteed-issue policy will often be in effect as soon as delivery has been confirmed, although there may be some restrictions placed for the first one to five years of the policy’s life. Guaranteed-issue life insurance policies are easier to apply for, but they also tend to be more expensive because the insurance assumes greater risk.

Affordable Term Life Insurance: How much insurance do you need?

A term life insurance policy provides coverage for a specific period. Typically you would choose to buy a term life insurance policy to protect your family from financial hardship in the event of your death. How much insurance you need depends on the extent of your financial obligations and how much savings you have to meet these commitments. These commitments can include mortgage payments and expenses for kids’ education. Also you may wish to provide replacement income for your spouse so that your family can continue to maintain their present living standard. The term policy can also include coverage to meet your funeral expenses.

The premium that you pay on your policy depends on three factors, the amount of insurance required, the term of the policy and how the insurance company assesses you for risk. The term refers to the number of years that you want the policy to be in force. Insurance companies have developed criteria to assess the risk level of clients that include their age, gender, smokers or non smokers as well as factors like blood pressure, cholesterol, and any other health issues. Risky occupations or hobbies as well as history of illnesses are other factors that can lead to your being considered a higher risk for insurance.

What type of term life insurance policy should you choose?

To cater to the varying needs of consumers, insurance companies offer term life insurance policies with different features.

For a level term life insurance policy, you pay the same premium throughout the period it is in force.

Most term life insurance policies are convertible to permanent life insurance at some point during the term, or depending on your age and policy, they can even be convertible until the end of the term period. An advantage of this type of conversion is that you can convert to a permanent life insurance policy regardless of your health situation.

If you purchase a “return of premium term life policy” then the premiums that you pay are refunded provided you are still living at the end of its term.  These policies carry higher premiums than other types of term life insurance.

What Happens When my Term Policy Expires

Most life insurance companies will let you renew your term life insurance after it expires, up to a certain age, like 95 for example. At expiration the premium increases, and continues to increase every year. If you are still healthy when the policy expires, you can usually get a better rate by locking in a new term period with an application for a new term life policy.

Does the Cost of Term Insurance Increase?

If you buy a level-term life insurance policy, your rate is locked in for the length of the term period, and does not increase. For example, if you buy a 15 year term policy, the rate is locked in for 15 years. Watch out for some carriers like AARP, and Globe Life who increase premiums every 5 years.

Do I Need a Medical Exam to Get Approved?

There are term life insurance policies that don’t require a medical exam. Generally there is a limit to how much coverage you can get (typically $250,000) and you have to be healthy to get approved. If you are in excellent health you will get a better price by getting a policy that does require an exam.

Can I Increase My Coverage in The Future?

Once you get a term life insurance policy you can’t increase the coverage. You can get an additional policy, or replace the existing one if it makes sense financially. Some life insurance companies will let you lower the coverage if that is something you want to do.

Can I Cancel Term Life Insurance or am I Locked Into a Contract?

Term Life Insurance isn’t like your cell phone contract. There are no early termination fees, and you don’t get locked into a contract. You can cancel anytime by stopping to pay the bill. You can call the insurance company, or tell your bank to stop authorizing automatic payments to the insurance company.

Five Questions You Should Ask When You Buy A Policy

If you’re researching term life insurance online you’re probably visiting multiple sites and getting quotes. You’re trying to figure out if you should quote yourself at standard or preferred rates, which companies are high quality companies, which policies require an exam, and other questions that can make the whole process highly confusing. Here are some things to ask when choosing a term life insurance policy so that you know exactly what kind of policy you’re getting.

Does the rate stay the same or increase over time?

If you’re getting a term policy, make sure it is a level term policy. This means that the price of the policy will stay the same throughout the term length. That means if you buy a 20 year level term policy the price should stay the same for the entire 20 year term. Look out for small print that says your rate increases every 5 years.

Is it convertible?

You may never decide to go from a term policy to a permanent policy but you never know – having the option is worthwhile. Why? Because if your health deteriorates you may decide to convert the policy to a permanent policy since it will be difficult to get insurance when your term expires.

Find out if the policy is convertible, but don’t stop there. You need to know if it’s convertible in the first 10 years, 20 years, or not at all. You should also find out if it’s convertible to a universal policy or whole life. The more choices you have the better.

Is there a waiting period?

Some life insurance policies have a waiting period before 100% of the death benefit is in effect. These policies should only be used if you can’t get approved for a regular policy. Unless you are considered “high risk” don’t pursue this option.

I’ve never heard of this life insurance company?

It’s possible that you haven’t heard of the life insurance company that has the best rate. That doesn’t mean that they aren’t a good company. Find out the company’s A.M Best Rating. Any company with an A or A+ rating is financially sound. Look for companies that have been in business for at least 50 years.

Is there a medical exam required?

You can typically get up to $250,000 or even up to $350,000 of life insurance without an exam. Find out if you are being quoted for a policy with or without an exam. While no exam policies don’t require a paramedic to make a house call and take a blood and urine sample their cost is typically higher than policies that require an exam. Compare your options and decide which is better for you.

Shopping for a term life policy

If you have any health condition – even common conditions like diabetes, arthritis or cholesterol elevation, make sure you speak with a high risk life insurance specialist.

To find an affordable term life insurance policy, choose an agent who works with many insurance companies and can negotiate on your behalf for the best deal. Periodically review your policy to check that your needs are covered. Clarify any clauses you don’t understand. Be honest when you file your application. Insurance companies refuse claims when you submit false information.

Finally confirm that your insurance provider is financially stable and choose a life insurance company that has an A or A+ rating from A.M Best.

As far as the “dont’s” of life insurance, don’t get discouraged. If you got declined you may not have been working with the right company, or the right agent.

Don’t give up, there are high risk life insurance companies. So if you got declined you want to make sure you speak to a high risk life insurance agent that can help you get approved with the health situation that you’re facing.

There are various types of life insurance coverages out there and you can get approved for life insurance. At Chooseterm.com we specialize in high risk life insurance and we can help you get approved for life insurance.

And last thing,Don’t hesitate. If you know you need life insurance get it,because you never know what the future brings and you want to make sure that your family is protected. So visit ChooseTerm.com and we can help you with your life insurance needs.

To summarize, the premium you pay determines how affordable your term life policy is. It is determined in part by the amount of coverage, term and features you want included in your policy. Take advantage of the competition in the insurance industry. Shop around and work with a broker who can meet your needs at an affordable rate.

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Liran Hirschkorn

Liran Hirschkorn is the founder of Chooseterm.com. His mission is to help individuals across the country in finding the best rates on life insurance as well as helping individuals with high risk life insurance.

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