What is Term Life Insurance?
Term life insurance is a type of life insurance that is temporary, as it covers only a specific period of time, the relevant term (5,10,15,20,25, or 30 years). It can be considered pure insurance because it builds no cash value. Term life insurance is also the lowest priced life insurance coverage on the market. Term life insurance offers the best life insurance value available by providing the largest amount of coverage with the least amount of premium dollars. For example, if you buy a $500,000, 20 year guaranteed term policy at age 40 for $1250 a year (annual premium), this means you will be covered until age 60 as long as you pay $1250 a year to the company. If you die between age 40 and 60 your beneficiaries get $500,000 (tax free), and if you live to age 60 you generally will drop the term policy because the guaranteed term period expired.
Term vs. Permanent life insurance
Term insurance is best for temporary needs while the purchase of Permanent insurance provides coverage on a more permanent, long term basis. If you would like to have life insurance past the age of 75 then buying a permanent insurance policy makes sense (term policies expire around age 75 or 80). A popular reason people buy Term insurance is to cover the temporary period know as the “dependency period”. This is the time period when a family depends on the money from the income earner(s) to enjoy a certain quality of life. Typically, this period lasts until the youngest child is no longer dependent on his or her parents.
- If you are on a budget then a Term Life Insurance Policy makes the most sense (and most Term Insurance Policies can be converted into a Permanent Policy at any time within the guaranteed Term period).
- If you have both Temporary and Permanent needs for Life Insurance (and are not on a tight budget), then a combination of Term Insurance and Permanent Life insurance makes sense.
- If your goal is estate conservation or if you are trying to pass on money to the next generation, a permanent policy makes sense (either a Universal Life Policy or a Whole Life Policy).
- A Universal Life Policy is a lot like a Term Life Policy that is good until you are 100 years of age.
- A Whole Life Policy is more expensive but it builds up a cash value so you can stop paying premiums after about 20 years (the cash value built up can be used to pay the future premiums until age 100).
- If you are in a high tax bracket and are looking for ways to tax shelter money, then a Variable/Flexible Universal Life Policy makes sense (especially when overfunded to the maximum IRS allowable amount) This policy is similar to a regular Universal Life Policy except it is overfunded, and all the overfunded money is invested into mutual fund type of accounts (investments in stocks and bonds).
What is Return of Premium (ROP) Term Life Insurance?
A Return of Premium Term Life insurance Policy is a new product to the industry. How it works is you pay a little extra for a regular Term Life Insurance Policy, and if you don’t die after the guaranteed term period is over, you get back every cent that you paid in for the policy. How it works is the Insurance company takes the extra premium you are paying invests it for capital growth. As a result they are able to return your premiums to you at the end of the level-premium period. If you can afford the extra premium amount, then these policies are very popular.
What type of Medical Exam is required?
A short medical exam is required for most life insurance companies. This process can be completed at your home or any other convenient location. The exam takes about 15-30 minutes and is conducted by a licensed paramedical or medical doctor and is paid for by the Life Insurance company (no cost to you).
The exam will involve:
- A blood and urine specimen
- Blood pressure reading
- Height and weight measurement
- A series of questions regarding your medical history, including questions regarding medical conditions, surgeries, medications, or other treatments you may have had.
- He or she will also ask the names and addresses of physicians and/or hospitals that have treated you. You may wish to make a few notes in advance to save time during the exam (please have the contact information of your general practitioner Doctor available).
When does my insurance coverage begin?
If you choose the telephone application, coverage will begin after the policy is issued, signed and accepted by you, and the first premium check is mailed to the insurance company. If you choose to either fill out the complete application online, or complete and sign the application yourself by our “print now” or “mail me the applications now” options… most companies will provide a temporary and conditional coverage at the completion of the medical exam provided a premium payment is made when the application is submitted for review (underwriting). This coverage is subject to the conditions outlined in the conditional receipt… most companies will offer a conditional receipt (temporary coverage) up to 250,000 while the application is in underwriting, provided the first premium payment is included with the application. The coverage is only binding if the applicant is deemed insurable at the end of the underwriting process. Note: If you are replacing an existing policy, it is very important to continue coverage until a new policy is approved at a satisfactory premium.
Do I need coverage on my spouse, dependents, and/or children?
You may want to consider having coverage on your spouse even if they are not currently employed. In addition to the emotional burden, the financial pressure on a family due to the premature death of a spouse can be significant. It may be necessary to cover various expenses associated with the loss of a spouse such as medical or burial expenses, or counseling. The surviving spouse will often take time off from work or make other career adjustments to deal with these issues, or to spend more time with children or other family members during this difficult period.
Rule of Thumb is to estimate that a non-working spouse or homemaker should be insured to have an income of at least $35,000 replaced
Insurance coverage for children is available to cover final expenses and also can be provided to guarantee insurability for the child’s future. These are available from most companies as a small additional premium that will cover all children in the family up to age 18. If you would like to insure your spouse, it is recommended that a separate application is filled out.
Can my policy ever be canceled due to health or other reasons?
No. Once a policy is issued, it cannot be canceled by the insurance company during the policy period for any reason including changes in health, providing the required premium payments are made and information on the application was not misleading or inaccurate. You will not be asked to provide evidence of insurability during the period of the policy. Note: As a policy holder you may choose to stop paying premiums at any time.
What will my life insurance cost after the guaranteed period?
Each insurance policy, if renewable, has a guaranteed maximum renewal premium which is explained and illustrated in the policy (keeping coverage after the guaranteed period is very expensive). The amount is the most you will have to pay to renew your coverage. After your initial guarantee period ends, you can reapply for new coverage with the same or a different company. If you qualify, you can begin a new period of guaranteed rates. This process is called “re-entry” if you qualify with the same insurance company.
Since your future good health is not guaranteed, re-entry is not guaranteed. In the event you cannot qualify for a new, competitively rated policy, many policies carry a conversion privilege. This feature allows you to convert your existing term policy to permanent insurance coverage (a whole life or universal life policy). Conversion periods and terms vary from company to company.