TERM LIFE INSURANCE: WHAT YOU NEED TO KNOW BEFORE YOU START SHOPPING

You certainly aren't alone if you find shopping for Life insurance a perplexing, frustrating process. Even for those with a basic understanding, the intricate details of many Life insurance products can be overwhelming for consumers.

Term Life insurance is one of the simpler policies, and it also happens to be a product that meets the insurance needs of a variety of family types. It offers you protection for a specified time, or term. The policy's term can be set at anywhere from one to 30 years. Your named beneficiary will receive a specified death benefit should you die within the term of the policy. Since Term Life insurance is designed for protection purposes, it's usually less expensive than Permanent Life insurance. A large percentage of Term Life consumers are opting for it because they feel their need for Life insurance will shrink as they age. For example, a person might feel the need to protect their children by having a Term Life insurance policy, but feel that this need will decrease or end once their children reach a certain age.

Although Term Life insurance sounds simple and straightforward enough, there are still a few additional points that you should be mindful of as you begin shopping:

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1. Determine your objective. Don't start shopping before you answer the following question: What am I trying to accomplish with a Life insurance policy? As you assess your goals, you might find that Term Life insurance is ideal for your needs, or maybe not. In most cases, a consumer will outlive the Term Life insurance policy's term, meaning that benefits are never realized. This element can be problematic if you're looking to protect your family long-term, or ensure future adult children or grandchildren receive a benefit. However, it can be ideal if you're looking to protect your family for a limited amount of time and/or would like to ensure debts are covered should you pass away in the near future.

2. Individual or Group? A Group Term Life insurance policy is usually an employee benefit through an employer. In most cases, a short health history questionnaire is all that's involved in the application process. Those that qualify will have the monthly premiums automatically deducted from their paychecks. On the other hand, an Individual Term Life insurance policy requires you to apply for the coverage on your own. Unlike group, you will need to have a physical exam and provide the insurer with your medical history during the application process. Some insurers may also require a background check and permission to examine your medical records.
It might seem like the Group Life insurance policy process is easier and less invasive, but the individual policy can offer you some advantages that the group doesn't. First, you'll own the individual policy and be able to retain it should you leave or be fired from your current employment. Second, rates on group policies typically increase every five years, but individual policies typically offer level premiums that don't increase during the duration of the policy. Third, group policies are typically less flexible than individual ones.

3. Know what you'll do next. There will be a couple of different options available when the Term Life insurance policy nears expiration, including:

  • Allowing the coverage to expire, which may be an option for you if you don't see the policy as a necessity any longer.
  • Retaining the policy, which might be an option for you if you feel you still need the policy or couldn't qualify for a different policy for health or other reasons. Just keep in mind that your premiums could increase when you extend the term of your existing policy.
  • Obtain a new policy through an alternative insurer, which might be an option if you're healthy and would like to still have a Term Life insurance policy, but don't want to pay the increased premiums associated with extending the term of your existing policy.
  • Upgrade to a permanent policy, which might be an option if you'd like to convert to a more permanent coverage.

4. Understand how you can upgrade. Upgrading is one of your options when your Term Life insurance policy nears expiration. Should you choose this option, you need to read the fine print in your contract. Upgrades are usually allowed under a conversion privilege, but the fine print may place limitations on the upgrade. For example, a policy might not allow you to convert to a permanent policy after you reach 70-years-old, or might only allow you to convert to a specific type of policy.

Keeping these tips in mind as you shop can make the process much easier and help you obtain the right policy for your family's unique insurance needs.

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