When seeking low cost term life insurance, you’ll obviously focus on price. But it’s important to understand that even if term policies have the same face value (death benefit) and term length, they can differ in other important benefits.
Therefore, when comparing low cost term life insurance options, it’s not enough to pick the lowest price based only on face value and term length. There are other factors you should consider.
1. Conversion Options
This feature of term life insurance policies permits you to convert the term policy to a permanent policy without any additional medical underwriting. You get the same health rating you got when you qualified for the term policy. When you convert, the pricing is based on your current age.
There is a period of time when you can convert the policy; it is not necessarily the entire term. If you decide you want a permanent policy, this may offer the least expensive option, especially if your health has declined.
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If your health declines during the term, a conversion may be the best priced option for you to keep coverage. You may find a new term policy would be too expensive or you may not even qualify for new coverage. Conversion options are a real benefit if you are in this situation.
But carriers differ in when you can convert and in what type of permanent policy you can convert to. When evaluating low cost term insurance, it’s critical to pay attention to these details. A conversion policy that allows a wide choice of permanent polices and conversion at any point is far superior to a policy that only allows you to convert early in the term and forces you to select a less flexible permanent policy. Some companies will only allow you to convert your term policy into a whole life product, which will be substantially more expensive than a guaranteed premium universal life insurance policy.
2. Financial Strength of Carrier
When you buy low cost term life insurance from a carrier that has financial struggles, you may be negatively impacted. Everyone worries that perhaps a company will go out of business and your policy will have no value. In reality, this does not happen. When a company is having financial problems, their “book of business” (all of their policies) will be purchased and serviced by another (larger) insurance company. We’ve never seen a company just disappear, they’ve always been bought out.
However, when this happens, there are some things you can expect to occur. Among them is a change in the conversion options available. The new company will decide what products you can convert your policy into. They usually allow only non-guaranteed products. What can happen is that your conversion options will not be as good as they were originally. So you want to make sure that you are dealing with a company that will be around for a while!
3. Free Riders
If your state allows, most low cost term life insurance policies will have one or more free riders that can be of great benefit to you.
The first one is the terminal illness rider (or accelerated death benefit) which allows you to access part of the face value of the policy if you become terminally ill and have a life expectancy of six months to a year (depending on the carrier). Your doctor would have to verify this information in writing (there is a form, of course!), but if you can’t work and don’t have the funds to take care of your family, you can access your insurance. Of course, accessing these funds will lower the death benefit, but in time of need, this rider can ease the strain for the entire family.
An new rider, which only a few carriers have, and not all states have approved is the critical illness rider. It’s similar to the terminal illness rider in that you can access money from the policy for living expenses if you develop certain illnesses. You do not have to be terminal. This is not to be considered a replacement for long term care insurance, but it is enough to be very helpful if you become too sick to work.
The Bottom Line
In your desire to get low cost term life insurance, don’t forget that there are other factors to consider beyond term length, face value, and price. Conversion options, the carrier’s financial health, and free riders will also affect value. Talk too an independent agent and see what companies make the most sense for you. You have to balance the price with the benefits.
Photo Credit: AmyMichelle~