When searching for the right policy, however, how can you tell what makes sense for you?
The two major categories of life insurance are whole life and term. Whole life is a combination of an insurance product and a savings vehicle. It provides an insurance payment upon your death but also accumulates cash in the plan that you can use later in life.
Although it can help with both your coverage in savings goals, a whole life plan may not be the best way to save money for retirement or other future cash needs when compared with other methods of savings, including IRAs or self-directed savings plans.
Term life is a simple product- it gives you a payout upon death. You can lock in to a term life plan for a fixed length of time, usually 1-30 years. The premiums you pay do not increase over the term of the plan.
So, for example, if you choose a 10-year term life policy at age 45, the premiums won’t increase until you’re 55. The downside of term life is that, the older you get, the higher the premiums get upon renewal.
How do you know what policy term you should take? Here are a few guidelines to help you choose the term that’s right for you:
1) Review Your Debt Situation
The main purpose of term life insurance is to provide your family with financial stability and/or replace your income if you are deceased. Every person’s financial needs are different, but a review of your current debts, such as mortgages and car loans can give you some direction as to how long you may need insurance in place. For example, if your mortgage will be paid off in 10 years, you may only need a 10-year term policy. When the term of a policy ends, your new financial situation will shape any new term policy you might choose to take on. Providing for your children’s education may also be important to you. If you weren’t around, term life insurance can top up other education savings that you may have already accumulated.
2) Define Your Insurance Goals
You may have other reasons for obtaining life insurance coverage other than to pay out debt upon your death. You may wish to leave money to family or to charity. You may also wish to use your insurance coverage to pay final or estate taxes. Make sure you choose the right length of term for what you’re able to foresee at this point in time. Having to renew at the end of a term will likely result in premium increases because you’ll be older at the end of every term. It might be better to lock in a low rate for a long term than to get the shortest term option just because it is cheapest.
3) Consider Your Family’s Health History
Term life premiums are based on several criteria, including age, lifestyle, and family health history. If you are young, healthy, and don’t have a family history full of disease, you will pay less for premiums if you choose shorter terms, such as an annual renewable term. The downside of a shorter term, however, is that you may pay a significantly higher premium or even be denied coverage upon renewal if your health profile changes. Shorter terms increase the risk of coverage down the road.
Choosing the right term for your life insurance policy depends on several factors that are unique to your particular situation. In general, the longer the term you choose, the higher the premiums will be. However, you get guaranteed coverage and guaranteed premiums for the entire term. With choices of 10, 15, 20, and 30 year terms with most life insurance companies, you can customize a term life plan to fit both your current and future needs.
Additional Factors To Consider
The steps listed above are the basic decisions that you’ll need to make for shopping for insurance coverage. There are several other options that you’ll need to consider in order to increase your chances of having the best possible plan available.
Before you purchase a plan, you’ll need to look at all of your options. Term insurance isn’t the only option, although it’s the most popular. There are many options on the market that may work better for your life insurance needs. The second most popular option is called whole life insurance. These plans a coverage that is permanent, meaning for as long as the premiums are paid, you’ll have insurance coverage.
If you’re an applicant that knows for sure you will need life insurance beyond the length of any term option that is available, then a whole life insurance policy could be the best solution for you. These plans also have the unique advantage of building up cash value. The value inside of your plan can be used to invest, pay the policy premium, or to take out a loan against if you ever need extra cash. Because these plans will never expire, they cost significantly more than a term insurance plan, which is why the majority of consumers choose a term policy instead.
Another type of policy to consider is a no exam policy, which means no medical exam will be required in order to be approved. This might be a good option for anyone who has a health condition that would be a negative factor in trying to obtain traditional insurance, but there are pros and cons to this type of solution.
One advantage is that, even if you’re in poor health, or you’ve been declined in the past you can still get life insurance coverage. Another advantage is that you can get approved relatively quickly. Since there is no medical exam and all the logistics of those factors being considered, the process moves along more quickly. It is possible to be insured in a matter of just a few days.
Probably the greatest disadvantage of a no-exam policy is that it will cost significantly more than a traditional term policy. The whole purpose of having a medical exam is to give the insurance company an accurate picture of your health so that they can make an educated assessment of your risk of dying while your insurance policy is in force. Without the information that a medical exam provides to the insurance company, they are forced to make an educated assessment of risk based on the general information about your age, sex, and the historical information they have pertaining to those general demographic.
Finding the most optimal solution for term insurance can be difficult. There are so many factors to consider. It’s such an important purchase for your family, and making the wrong choice could leave your family with leftover expenses, or you could end up paying too much for your life insurance. You can count on us to be here for you and to help connect you with the best policy to meet your needs.
For a quote please call us at 1-888-552-6159.