What is a term life policy?

Quite simply, a term life policy is insurance protection that provides your beneficiaries with a cash death benefit if you pass away during the term of the policy.  For help understanding the difference between a term policy and a permanent policy, you can visit Us.

Life insurance companies will offer a term life policy for those individuals who qualify under a company’s underwriting guidelines. 

Underwriting guidelines are the criteria that insurance companies use to determine if you are an acceptable risk.

It’s important to remember that each life insurance carrier has different underwriting guidelines. They will all look at your health and lifestyle differences.

How do I know which life policy is the best?

To determine which life policy works best for your situation it is important to do a little bit of homework. By reviewing this article and with the help of google you should be able to gather enough information to make a wise decision regarding your life insurance needs.

Let’s break down some of the common questions surrounding a term life policy and how to go about finding the best plan.

How much coverage do I need?

This is probably the best starting point when purchasing life insurance protection. Here are some of the common reasons individuals purchase life insurance:

• Replace income– this is probably what most people think of when trying to determine how much life insurance protection to buy. If you are not around to earn an income, then your family will suffer a significant lifestyle challenge. Six to Ten times income is a good starting point.
• Mortgage Protection– another common reason a family might purchase life insurance is to make sure the mortgage balance is paid off in case of an untimely demise.
• Children Education– Planning for a college education can be very expensive. Who knows where your child may want to go to college. And with college costs rising every year, protecting this need with life insurance makes a lot of sense.
• Final Expenses- the cost of final expenses such as funeral and burial continues to rise. Also paying off any outstanding credit card or auto loans may be something that needs to be planned for.
• Estate Planning Needs– Life insurance can often time be a good tool for those who expect to have a large estate tax due upon death. Other estate planning needs that life insurance can assist with include college endowment or charitable giving.

Now, it is important to remember that each person’s needs are different and we recommend a complete needs analysis from an insurance professional, CPA or estate planner to determine exact needs.

But, if you wish to do a quick needs analysis in order to get coverage in force as quickly as possible, the link here will help you narrow down your coverage needs.

To this point, we have primarily talked about term life coverage for personal family needs. But, term life insurance can also be used the same way for business needs. Here are some of the common ways that term life insurance can satisfy business protection needs:

• Key Person Insurance– Life insurance protection on a key member of a business or organization. Someone who is vital to the continuation of the business.
• Buy-Sell Insurance– A buy-sell agreement between two business partners can be funded with life insurance. This insures an easy transition of the business if one of the partners dies.
• Collateral Assignment– Many times banks want a life insurance policy assigned to them as the lender on a business loan.
• Executive Bonus– Often times a life insurance policy can be used as a special bonus to an important member of the business. This type policy can offer extra protection for the employees family.

 

Who is the life policy for?

Another important question that must be answered when you are thinking about purchasing a life insurance policy is who actually is the policy for?

Most often this is fairly straight forward when a personal policy is a purchase. Many times the spouse is named as primary beneficiary. But, the need for coverage may be more complicated than this.

What if you want to leave money to your kids from a previous marriage? What if you have a former spouse that must have her as the beneficiary due to a divorce decree? Are there step-children involved? If leaving to minor children is there a guardian or trustee set up?

These questions on the surface may sometimes seem simple, but often times can get confusing. Again, it is important to know who the benefit of the life policy is for and make sure to update any necessary beneficiary changes.

How long do I need the protection?

Okay, this question is sometimes the most difficult to answer. After all, most people want the coverage to be in force for as long as possible. But, it is very important to remember that term life insurance is temporary protection, not permanent protection. This simply means that at some point when the original term period has expired the rates will increase dramatically if you want to continue the coverage.

Term life insurance by its very nature is the least expensive type of coverage you can purchase. It is meant to provide you with the most death benefit protection for the least amount of premium. So, it is important to know why you are buying the coverage and how long you want the coverage to offer protection.

Let’s look at a few examples of term life policies that are offered in the marketplace:

• 10 Year Guaranteed Level Term–  This policy offers a guaranteed level premium for 10 years. At the end of 10 years, the rate will adjust higher. This policy should only be for a short-term need. An example would be perhaps someone who has just 10 years remaining on a home mortgage. A 10-year term policy would not make sense for someone who needs protection to last 20, 30 years or longer.
• 15 Year Guaranteed Level Term- Offers guaranteed level premiums for 15 years. Rates for this policy will be more expensive than a 10-year policy, but will also offer an additional 5 years of coverage. This policy could make sense if your needs are limited to around 15 years. An example might be a married couple with a young child that will be through with their education/college within 15 years.
• 20 Year Guaranteed Level Term-  A 20 year guaranteed level premium plan offers many people a good compromise. The rate will be more expensive than a 10 or 15-year policy but offers an additional number of years of protection. An example of this policy would be an individual who is age 45 and wants protection to last until they retire at 65.
• 25 Year Guaranteed Level Term- The 25-year term policy is not offered by as many insurances carries as the 10,15 and 20-year plans, but can be a great fit for someone that has a new baby or new mortgage and wants to have coverage with guaranteed level rates for 25 years.
• 30 Year Guaranteed Level Term- The 30 year guaranteed level term is very popular especially for young families and those with new mortgages. The rates are higher than those of the other terms but provide excellent long term protection during most of the working years.
• Return of Premium Term– The return of premium term policies offered in the marketplace allows you to still lock in most of the guaranteed level rates mentioned above, but with one caveat. These policies allow you at the end of the return to recoup most if not all of the premiums you have paid in. Of course, these rates are higher priced, but for those individuals who may need a simple way to ensure and save, this product can be a solution.

What if I have health problems? Can I still get a term life policy?

Okay, so you have determined you have a need for life insurance. You know the amount of coverage you desire. You know the plan of coverage you want, but what happens if you have a history of pre-existing medical conditions? Or perhaps you scuba dive, race cars or have a high-risk occupation.

Finding affordable protection for those who may be in less than perfect health is possible. But, there are a couple of things you need to do to help your cause. First, you must work with an agent or agency who specializes in this niche area of underwriting.

Any agent in the marketplace can write a term life policy on someone who is in perfect health. But, only agents who have years of experience and knowledge working with all kinds of health impairments can find you the company that specializes in your particular risk.

As we mentioned earlier, all life insurance companies have certain criteria they look at when evaluating someone for coverage.

But, there is also a handful of companies who underwrite certain risks better than others. The secret is finding the company that will offer you the lowest rates for your condition.

Fortunately, you have landed on the right page. We are experts at finding the companies who do this type of underwriting the best. In fact, with our over 30 years of experience, we often times can instantly tell you if an offer is possible and what even give you a quote.

Optional riders that can be added to a term life policy

Many of the hundred, if not thousands of life insurance carriers offering term life policies also offer riders that can be added to the base policy.

A rider is simply an additional benefit added to the base policy at an additional charge. Here are some of the most common riders that can be added to term life policies.

• Waiver of Premium– this benefit which is typically available up to about age 55 allows the insurance company to waive your premium should you be disabled.
• Child Rider– A child rider offers a low-cost way to add child(ren) coverage to your policy. Most child riders are limiting to $10,000 of benefit per child.
• Spouse Rider– Much like the child rider, the spouse rider allows you to include your spouse on the base policy. The benefit amount for the spouse is usually limited to $50,000. Important to note that all riders are subject to same underwriting review as the base policy.
• Long-Term Care or Critical Illness Rider– these riders are fairly new and only a few carriers offer them. But, they do offer you the ability to accelerate your death benefit and use for a long-term care or critical illness. The definition of the long-term care or critical illness rider is different for each carrier, so it is important to review carefully.
• Accelerated death benefit rider–  This rider has become very common on most term life contracts and often times has no additional premium charge. Most define this rider as the ability to accelerate up to 50% of the death benefit early subject to a maximum amount if you are diagnosed by a doctor with a terminal illness and have less than 12 months to live.

Real Life Example of the use of Term Life Insurance

David is a 35-year-old married man with 3 children ages 8,5, and 3. David has a small amount of life insurance at his work but feels the need to have more coverage. David has approximately $225,000 left on his mortgage. His income is 85,000 per year. David wants to be sure that his wife and kids have enough money to pay off the mortgage, put the kids throught school and still have the income to live off of. David calculates his needs at $1,000,000 of coverage.

David would also like a policy that will stay in force until he retires in approximately 30 years. In order to keep his premium cost down, Dave wants to ladder his policies. This laddering will help his coverage stay in effect for the needs as he goes thru his life. Dave decides to purchase a $225,000 15 year level term to match the approximate time left on his mortgage.

Dave’s youngest child is 3 so he determines that a 20 year guaranteed level term policy for $250,000 should be set aside for education purpose. The remaining $525,000 of coverage will be carried under a 30 year guaranteed level policy.

Dave would also like to add some coverage for his wife and kids. So, he decides to add a child rider for $10,000 of protection for each child and he places a spouse rider of $50,000 for his wife.

Dave now has a complete line of protection for most of his foreseeable needs.

Conversion option with term insurance

One of the most important features that is offered for free with most term life policies is something called the conversion option.

The conversion feature is included in most term policies, but it is important to check your particular proposed plan to see the details of this option.

Some companies only offer the conversion option for a limited time. Perhaps only during the initial guaranteed level period or to a certain age. Knowing how long your conversion option is offered can be particularly important if or when you need it.

Here is exactly what the conversion option is. The conversion option allows you to convert any or all of your term death benefit to a permanent lifetime death benefit with no medical underwriting or health questions.

Now, you may ask why is this so important. Here is why. Suppose your needs change and so does your health. Let me give you an example.

Joe purchased a 10-year level term to cover him until is youngest kid gets out of college. Joe has originally issued a $250,000 policy at super preferred non-tobacco rates. Approximately 5 years into the term policy Joe is diagnosed with diabetes and high blood pressure. Joe also finds out a new surprise. His wife is pregnant.

Joe knows his current 10-year term policy only has 5 years remaining. He is worried if he will not be able to qualify for new insurance protection due to his medical history.

Fortunately,  Joe has the conversion option on his current policy. He can now convert any or all of his current term policy to a new guaranteed lifetime level premium policy with no medical exam or health questions. The conversion option is guaranteed.

When or if he converts his current coverage to a new plan he will receive the super preferred non-tobacco risk class that he was originally approved at 5 years earlier. This is a huge advantage for those whose health has changed but still need insurance coverage.

Bottom line is, you never know if you will need to extend your coverage. You also never know what your health will be. It is vital that your current term life policy has the conversion option included just in case.

Who are the best term life policy companies?

In the life insurance arena, it is common to see some of the same company names show up year after year as having the best term plans. Of course, occasionally you will have a company that wants to make a splash in the term market and they will lower their rates to be competitive.

Or, you may find a company that wants to be more competitive in the “impaired” risk marketplace, so they begin to price their rates better for those with diabetes, heart disease, etc.

But, as of the time of this blog, below are the companies that typically show up as being competitive both in price and underwriting. In addition, all of these carriers are rating excellent by most of the rating services such as A.M. BEST, Standard & Poors and Moody’s. In no particular order:

• Protective Life
• Banner Life
• Prudential 
• Lincoln National Life
• Principal National Life
• Cincinnati Life
• Ohio National Life 
• American General Life
  
• John Hancock
• Mutual of Omaha
• Pacific Life
• Assurity Life 
• North American Life
• Mass Mutual Life
• Savings Bank Life 
• Independent Order of Forresters

How to apply for a term life policy?

Nowadays there are many ways to buy life insurance. Below are some of the ways you can purchase a term life policy.

1. Online from a big box quoting service perhaps hundreds of miles away.
2. From your hometown property and casualty company
3. Direct toll-free number to an insurer
4. The use of an independent insurance adviser
5. A bank
6. Financial Adviser or CPA

It’s important to keep in mind, how much assistance you will need when purchasing coverage. Will you need help finding the lowest rates? Do you want to be sure to have somebody to call on policy issues that come up after the policy is placed? Do you have a pre-existing medical condition that needs an expert assistance? Do you need to know every detail about the policies? (conversion, riders, etc.)

Most people buying life insurance know that somebody will get paid a commission to help with your policy. All life insurance policies pay a commission to someone- no matter how much assistance you get. The commissions are already built into the price of the policies, so there are no negotiations on commissions like with a car sale or any other large ticket item.

In other words, let’s say you buy a Prudential policy from an agent in California even though you are located in Georgia. The rate would be the same in Georgia as it would be in California. So, what you are paying for is the service you get into helping you obtain the protection and the service you get once the policy goes into force.

So, although a quick toll-free number to someone sitting in a stall may be a quick way to get a quote- what actual personal service will you get thru the underwriting process and after the policy is completed? I mean will you ever be able to get a hold of the person again from the 1-800 number.

Of course, we are probably biased, but we feel you will get the best rates, knowledge, and service from an independent agent who has been in the business for 20+ years.

An independent agent will represent hundreds of companies and will be able to give you expert advice on the questions you need to be answered. Also, an independent agent who has been in business for many years is here to stay. No worries about not being able to reach your agent when the time arises.

Remember, someone on the end of that phone is getting paid to sell insurance. We think it should be someone who will be there to answer any questions that arise and represents your best interest, not theirs.

Information needed to quote on a term life policy

• Name
• Date of birth
• Amount of coverage needed
• Type of plan (if known)
• Tobacco use within 5 years
• Family history of cancer or heart disease before age 60
• Current medications
• Brief medical history
• Any foreign travel
• Any motor vehicle violations
• Any hazardous activities or hobbies

Exam or non exam term life policy

Many insurance companies offer individuals the opportunity to purchase life insurance with or without an exam depending on the circumstances. If you are a relatively healthier individual less than 50 years of age, you can typically buy coverage up to $1MM without a medical exam or blood work.

Now you will typically pay a bit higher rate to buy insurance without an exam or labs, but if you are in a hurry for protection and a few extra dollars does bother you, then a no exam policy could be a good idea.

If you are not in a hurry and want the absolute lowest rates than a fully underwritten policy with exam and lab work will give you the best chance for the lowest rates.

Again, an experienced agent who offers all the different options will give you the information you need to make the best decision.

It’s always a good idea to confirm that your hospital is in your health plan’s network before you go in for a procedure – but this proactive step still may not be enough to avoid surprise medical bills.

Millions of Americans get surprised bills from doctors who don’t participate in their health plan but who practice in hospitals that do. This often happens when an anesthesiologist or assistant surgeon you didn’t even know was going to be in the room during your surgery (and who doesn’t participate in your health plan), scrubs up and steps in during your procedure. When it’s all over, the out-of-network doctor bills you for the difference between what your insurer paid and what the doctor charges. The practice is called “balance billing.”

The Affordable Care Act requires insurers to cover out-of-network emergency services at in-network rates. But the law doesn’t stop doctors from balance billing, and it doesn’t release patients from their responsibility to pay surprise medical bills.

Although you don’t have complete control over whether or not you’ll get a balanced bill, there are steps you can take to reduce the likelihood and to fix the problem once it happens.

Plan ahead. Before a planned surgery ask about the team of healthcare providers who will treat you while you’re hospitalized.

It’s very difficult to control who sees you at the hospital or to know which doctors participate with your health plan. But it can’t hurt to ask that they keep non-participating providers out of your room.

Check for mistakes. It may be that an in-network provider got recorded incorrectly as out-of-network in your insurer’s system when your claim was processed.

When you get a bill, don’t pay it right away. Instead, call your health plan to discuss the bill you received and ask if you can get the charges removed if they’re incorrect.

If you get health insurance at work, your employer may be able to help dispute the bill.

Talk to your doctor. Physicians are sensitive to the financial burden patients are under these days, including those caused by surprise medical bills. It’s worth calling to ask if the doctor is willing to reduce the price of the bill.

Your health plan should also be able to step in and help. In some cases, your insurer will negotiate for you with physicians to either lower or waive out-of-network charges.

Check your state. Federal law does not protect patients from balance billing. However, about a quarter of the states do have laws in place that protect consumers from balance billing by health care providers that don’t participate in their health plan. Check with your state’s department of insurance to learn about the protections where you live.

File an appeal. The law entitles you to both an internal appeal with your insurer and an external review by an independent third party. Your health plan must provide guidelines about how to go about the appeal process.

We often get asked questions along the lines of “My aging parent is very ill and medical bills have drained his/her savings account, but I cannot afford to pay for the funeral if he/she should pass away.  Can I buy life insurance on my parent?”  In this scenario, we do not advise purchasing “regular” fully underwritten life insurance.  More often than not, term life insurance is going to be ideal for most people, but not in this scenario.

Why we wouldn’t recommend term insurance in this case…

Term life insurance would typically not work in this case because the coverage amount would be too small, the client would likely be uninsurable because of health issues, and the client’s age would be outside the range a life insurance company would approve coverage for.

What we would recommend…

When we get this question, we usually tell inquirers that they have two options:

1. Take the money you would have spent each month on term insurance and instead put it into a savings account so it can start accruing interest. You can then access these funds later when in need of money for your loved one’s final expenses.
2. Purchase a guaranteed issue life insurance policy.

What is a guaranteed issue life insurance policy?

Guaranteed issue life insurance is a type of life insurance that you cannot be denied coverage on, hence “guaranteed”.  There are a few things you should know about this type of insurance.

1. Guaranteed issue life insurance is typically known as “last resort” life insurance. It’s meant for those who may have been denied previously and/or are not in good health.
2. Guaranteed issue life insurance policies are designed so that surviving loved ones can pay for your final expenses, such as a funeral, burial, and medical bills.
3. Guaranteed issue life insurance premiums will never increase.
4. A guaranteed issue life insurance policy accumulates cash value.
5. Guaranteed issue life insurance policies have significantly lower death benefit amounts compared to term or permanent policies.
6. There is no medical exam or questionnaire required for guaranteed issue life insurance. The only factor that is really taken into consideration is the age of the insured.  Because of this, guaranteed issue life insurance premiums are higher per thousand than most other types of life insurance.
7. Benefits are limited within the first two years. This is called a Graded Death Benefit period.  What this means is that if you die within two years of buying the policy for any reason other than an accident, your beneficiaries typically only receive the total amount of what you paid in premiums.  (This can vary depending on the carrier.)

So, if you’re in relatively good health, fully underwritten life insurance may be a better option for you.  However, guaranteed issue life insurance is a great option for those with a desperate need.

How much does guaranteed issue life insurance cost?

While you can get millions of dollars’ worth of term life insurance coverage, guaranteed issue life insurance coverage often caps at $50,000.  Again, its design is based around simply helping your surviving loved ones pay for your final expenses.

Quotacy works with Gerber Life to provide guaranteed issue coverage options.  Gerber’s guaranteed issue policy is available in all U.S. states except for Montana.  Take a look at the examples and table below to get an idea on what a guaranteed issue policy can cost.

Although this type of policy is easy to acquire, it offers less coverage and higher premiums than traditional life insurance, so explore all your options.  If you aren’t sure if guaranteed issue life insurance is the best choice for you or want more information, contact us here at Quotacy and we can help you.

Recap of Guaranteed Issue Life Insurance:

• If you’re between 50 and 80 years old, you can be accepted for guaranteed issue coverage regardless of your health.
• There are no medical exams to complete or health questionnaires to fill out.
• Cash value accumulates within the policy.

Remember, term life insurance quotes are free to run on Quotacy.com and there is no penalty for applying.  It doesn’t hurt to apply for term life insurance, then opt for guaranteed issue if you end up being denied.  The more options you have, the better decision you can make.