Term life insurance is designed to provide simple life insurance protection with guaranteed level premiums for a specified period of time. Many life insurance consumers overlook several factors that should be considered when purchasing term life insurance coverage. This guide is designed to educate life insurance consumers on how to select the proper term life insurance policy to meet their needs.
Three Important Policy Provisions in Term Life Insurance:
#1 Ability to Reduce the Policy Face Amount in the Future
#2 Ability to Convert the Term Policy to a Permanent Policy in the Future
#3 Are Premiums Guaranteed to Remain Level the Entire Term of the Contract
Many individuals need less life insurance coverage as savings accumulate and children age. Most term life policies available in today’s insurance marketplace allow the policy owner to reduce the contract’s face amount to meet reducing coverage requirements. Some insurers do not offer this feature within their term life insurance policies. This places a constraint on the policy that should be avoided. Some companies that do not allow the policy owner to reduce the face amount are:
- American General Life
- Banner Life
- Lincoln Benefit Life
- Western Reserve Life
Conversion options allow the policy owner to convert a term policy to a permanent, level premium contract without medical qualification. Effectively, one is guaranteeing future insurability when purchasing a term life insurance policy with conversion options. Term policies offer different periods of time these options are exercisable (example, “to age 65” or “the first 10-years of the policy”). It is important that a term policy offer conversion options for the duration of the contract, or as close to the duration as possible.
Term insurance policies have different premium guarantee periods. The most common policies offer either level premiums the entire term period, step-rate premiums that increase at set intervals, or annually increasing premiums. It is important to understand the premium structure prior to purchasing term life insurance coverage. In general, most life insurance consumers prefer level premiums the entire term period.
Two Important Differences in Term Life Insurance Underwriting:
#1 Important Life Insurance Company Underwriting Differences
#2 Understanding Life Insurance Age Classifications
Life insurance companies establish their own set of health classifications. Some companies have four to five rate classifications while others have over twenty. For example, Western Reserve Life offers two preferred best classes (preferred elite and preferred best). Often times one can only qualify for the preferred best rate (2nd best) when they expect to receive the premium of the preferred elite rate class. A proper evaluation of one’s health history will reduce the inaccuracy in policy quoting.
Life insurance companies classify ones age by either their current age or the age they are closest to. Premiums can increase at one’s half birthday if the proper policy date is not used on the application.