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Term Life Insurance Review

Term life insurance has one benefit. It pays out a death benefit to named beneficiaries if the benefactor passes away during the term of the policy. The term simply refers to the duration of the policy. Policies range in term anywhere from as few as five years to 30 years.

It is a simple definition, and assuredly when you go to get quotes you will still be overwhelmed. The reason is getting a handle on all the packaging of policies makes comparing quotes difficult.

If you look carefully, you may have one policy providing added benefits of paying specifics beyond a tax-free death benefit.

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Are added benefits worth it?

For instance, some insurance companies offer funeral and burial benefits as part of a policy. For the most part, you are better off just buying more death benefits, because often the added benefits beef up the cost of premiums.

That means, basically, if you are comparing a 250,000 dollar death benefit plus 15,000 dollar funeral and burial benefit for 300 dollars per month you might look at a 265,000 dollar death benefit too.

The latter death benefit, in all likelihood, will cost less. Another factor to look at is your own health.

You may be afraid to go to the doctor and even more leery of letting the insurance company do any medical underwriting (read: blood tests and reviewing your medical history) to prepare your term life insurance policy.

When to Take the Medical Tests

If you are in good health and a non-smoker, then do the medical test. It will save you money on your premiums. On the other hand, people who are maybe are dealing with chronic or acute health problems that reduce longevity, then consider just paying up for the guaranteed acceptance plans.

Guaranteed acceptance means that there is no medical test or other hindrances to qualify you for a term life insurance policy. If the thought of premiums under guaranteed acceptance policies scares you, knowing another tidbit about term life insurance will quell your anxiety.

Term life insurance is the cheapest of all life insurance products and arguably the best bang for your buck. It pays out tax-free to your beneficiaries in the event of your death during the term. Yes, you will have to read the policy and verify that your hobbies do not nullify the deal.

What about suicide?

It's worth noting that suicide is one time term life insurance may take exception and may not pay out benefits.

Though, it depends on the policy. For instance, in some cases you have to have the policy in effect for three years or else the carrier will deny the claim for death benefits. That's why you always need to read policy details. Know what you are buying.

Determine What You Need from a Policy

One-size does not fit all where term life insurance policies come into play. That is why it is important that you decide what you need to fulfill your financial role if you are to die. That is basically what you are determining when you buy a term life insurance policy.

Ask yourself the following questions to make sure you buy enough term life insurance:

  1. Who depends on you for financial assistance? Beneficiaries are any dependents, not just your children
  2. What percentage of family income do you provide to your dependents? Do you supplement your mother's retirement and have a wife who splits bills equally on your homefront, where you are raising your kids?
  3. Do you want to add in costs of private school and higher education?
  4. Do you want some of the money to support your spouse's eventual retirement?
  5. Is there anyone else you might like to leave money, such as donations to your alma mater?

This list is loosely based upon the National Association of Insurance Commissioners guidelines.

Do also take into account estate taxes and consider hiring an estate attorney to ensure your loved ones are notified of your life insurance benefits in the event of your death. Otherwise, insurance carriers will not necessarily come looking for your beneficiaries to pay out on your policy.

What impacts policy pricing?

When buying term life insurance, it is not your imagination. If you tried inputting different information into the quotes just to see what would happen, the quotes for premiums would differ, sometimes drastically.

The age you purchase your policy is a big one. The older you are, the more expensive the premiums. Again, your medical history, determines a good deal about your policy premiums.

You may end up tagged if you have a pre-existing condition and put into a high-risk pool, which translates to higher policy premiums. They look at hobbies and leisure-time activities, such as smoking and heavy drinking. For underwriting purposes, the insurance companies evaluate habits over the past five years.

This is where some people actually benefit from buying shorter term policies, despite being a few years older. For instance, if you quit drinking, but are under the five year mark, your rates will be higher. If you apply for term insurance after the five year mark of your policy, you might find lower premiums.

However, if you still ski, go rock climbing or sky dive, you might still find higher rates. They look at your driving record to scour for dangerous habits, tickets and driving while under the influence. In addition, insurers look at the age of the policy applicant and Where you live.

Where you live does correlate with particular mortality rates, which insurance companies like to research prior to underwriting a policy. In addition, if you have a history of credit problems, such as paying late, then rates increase.

Of course, wise consumers always research insurance companies to find out if they can pay out on insurance benefits claims.

Check out A.M. Best for creditworthiness details on your insurance carriers.

Ready to Sign the Line

Before you sign the paperwork for a new term life insurance policy, do some more critical reading of proposed policy details. Find out if the premiums are level throughout the term of your life insurance policy Is there any part of the policy that may not pay out?

Will there be a huge hole left in benefits due to inflation? If so, can you buy an additional inflation rider to make your policy worth as much as you intended?

Mix and Match Details

Some people are turned off by paying policy premiums, no matter how low, for an event that is unlikely to occur. Only maybe one percent of term life insurance policies get cashed out. That means most people thankfully do not die during their policy term.

That begs the question, would you be better off with a policy that can do something for you? That's why cash value life insurance policies were developed. They offer a death benefit alongside a cash value.

Now, depending upon the type of cash value plan, you may actually lose money. Other policies guarantee a return.

However, the cash value is not built quickly nor is it at a cheap price. Variable and universal life insurance cost considerably more money than term life insurance policies. Another idea is to decide what you want from a policy. Do you want to be able to cash out the death benefit for an emergency, such as for long term care?

See if you can get that stipulation written into your policy. It will allow you to use the money for nursing home, home health aides and other skilled care in an in-home, senior day care center or in a residence home.

There are many options for families, who can decide to buy term life insurance or other products. Term life insurance is the least complicated, least expensive and most financially rewarding for your surviving dependents if you die during a term policy.

Make sure you always compare policies by  using our FREE search tool below.

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