Term life is typically less expensive than a permanent whole life policy – but unlike permanent life insurance, term policies have no cash value, no payout after the term expires, and no value other than a death benefit. To keep things simple, most term policies are “level premium” – your monthly premium stays the same for the entire term of the policy. Show Here are three key questions you should answer before you get a policy: How a term life insurance policy worksIt’s a contract. At its most basic level, a term life policy is an agreement between the person who owns the policy (the owner) and an insurance company: The owner agree to pay a premium for a specific term (usually between 10 and 30 years); in return, the insurance company promises to pay a specific death benefit in cash to someone (a beneficiary) upon the death of someone else (the insured). That benefit is usually tax-free (unless the premiums are paid with pre-tax dollars). There’s an application process. You may have seen or heard ads that say things like, “A male non-smoker in his 30s can get a 20-year $500,000 term policy for under $30 a month.” Some people can get that much coverage for under $30 – but it’s not automatic. Before they give you a policy, the provider needs to assess how much of a risk you are to insure. This is called the “underwriting” process. They’ll typically ask for a medical exam to evaluate your health, and want to know more about your occupation, lifestyle, and other things. Certain hobbies like scuba diving are deemed risky to your health, and that may raise rates. Likewise, dangerous occupational environments – for example, an oil rig – also may raise your rates. You need to choose a term length. One of the biggest questions to ask yourself is, “How long do I need coverage for?” If you have children, a popular rule of thumb is to choose a term long enough to see them out of the house and through college. The longer your term, the more you’ll typically pay each month for a given coverage amount. Nevertheless, it usually pays to err on side of getting a longer-term policy than a shorter one because you just never know what the future holds and it is generally easier to get insurance while you are younger and in good health. Decide how much of a death benefit you want. You should consider getting enough coverage to care for your family’s needs if you’re not there to support them; in section 3 we’ll tell you a few different ways to figure out how much that is. Whatever coverage amount you need, it will likely cost less than you thought: A recent survey found that 44 percent of millennials believe that life insurance is at least five times more expensive than the actual cost.1 Name your beneficiaries. Who gets the benefit when you die? It doesn’t all have to go to one person. For example, you could give 50% to your spouse and divide the rest between your adult children. And while beneficiaries are typically family, they don’t have to be. You could choose to leave some or all of your benefits to a trust, a charitable organization, or even a friend. The different types of term policies you can buyAs you shop around and start talking to companies or insurance agents you may hear about different kinds of term policies. They all provide a specific benefit over a specific term but may have very different bells and whistles and costs.
One more thing to look for in a term policy: Convertibility Convertibility is a policy provision that lets you change your term insurance into a permanent whole life policy later on – without having to get a new medical exam. It’s a feature offered by almost all major insurance companies that let you change your type of life insurance. Guardian, for example, lets you convert level term insurance coverage at any point in the first five years to a permanent life policy – and even offers an optional Extended Conversion Rider which lets you do so for the duration of the policy. 2 Why would you convert to a whole life policy from term? If you’ve had a serious health problem – for example, a heart attack – it may be very difficult to get another policy. Another reason: you’re attracted to the cash value component of a whole life policy. Or maybe you want permanent life-long coverage. A term policy may well be your best choice now, but things can change. Look for an insurer that offers the option to convert from term to a whole life policy without taking another medical exam, which would likely increase your cost. The chart below lists some of the important differences between a term life policy and whole life insurance, but if you want to find out more, talk to an insurance agent or financial representative.
How to determine the amount you need – and where to get itIf you have a young family, it will take many years of income to pay to feed, house, clothe, and educate your children through to adulthood. If you’re not there to provide for them, life insurance can help with those costs – but you have to make sure your policy’s death benefit is enough to do so. Here are a few general rules people use to help determine how much they need:
Any of those methods is a good start, but it also makes sense to talk with an experienced professional who can guide you through the process of calculating your actual need. Where to get term life insuranceIf your company offers group life insurance as part of your employee benefits package, that can be a great place to start. Because the company is buying for a large group of people, the premiums are typically lower than for an individual policy. Your employer may also subsidize a portion of the premiums or even provide coverage equal to your annual salary at little or no cost. On the other hand, the total amount of coverage you can get may be limited, for example to three times your salary. And if you leave the company you could lose your coverage. Even if you have some coverage thorough work, it may not be enough for your needs. The good news is, term life insurance is generally easy to shop for: Many companies, including Guardian, will give you an instant online quote. Compare insurance rates from a couple of sources, and before you make a choice consider the company you’re buying from. You’re looking to have a long-term relationship with that company, so look for the following qualities.
Another way to compare insurance companies is by looking at online customer reviews. While these aren’t likely to tell you much about a company’s financial stability, it can tell you how easy they are to work with, and whether claims servicing is a problem. Want to talk things over with someone before you buy term insurance? That’s a great idea. Guardian can connect you with a financial representative who will listen to your needs, tell you about the best ways to meet those needs within your budget and types of life insurance policies available, then will help you decide. Whichever way you decide to buy, consider doing it soon. Remember: the longer you wait to get life insurance, the more you’re likely to pay. |