Advantages and Disadvantages of Term Insurance

Advantages

• Initially, premiums are generally lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age when the need for protection often is greatest.
• It’s good for covering specific needs that will disappear in time, such as mortgages or car loans.
• The new 20 and 30 and year products can provide coverage as long as most people might need life insurance.

Disadvantages

• Premiums increase as you grow older, after the term selected expires, providing it renews past that term.
• Coverage may terminate at the end of the term or may become too expensive to continue.
• Generally, the policy doesn’t offer cash value or paid-up insurance.

Questions to Consider When Considering a Term Policy

• How long can I keep this policy? If you want the option to renew the policy for a specific number of years or until a certain age, what are the terms of renewal of the contract.
• When will my premiums increase? Annually? Or after a longer period of time, such as five or 10, 15, 20, 30 or even 40 years?
• Can I convert to a permanent policy? Some policies allow you to convert the policy to permanent insurance without a medical exam, regardless of your physical condition at the time of the conversion. These policies are known as “convertible term.”

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1. What happens if I fail to make the required payments?

2. What if I become disabled?
Provisions or riders that provide additional benefits can often be added to a policy. One such rider is a waiver of premium for disability. With this rider, if you become totally disabled for a specified period of time, you do not have to pay premiums for the duration of the disability.

3. Are other riders available? (* availability and specifics of these riders vary by carrier and state.)

• “Accidental death benefit”, provides for an additional benefit in case of death as a result of an accident.
• “Accelerated benefits”, also known as “living benefits.” This rider allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care or confinement to a nursing home.
• “Child rider”, provides insurance for all your children, usually from $1,000 to $20,000 of death benefit.

4. When will the policy be in effect?
If you decide to purchase the policy, find out when the insurance becomes effective. This could be different from the date the company issues the policy.

5. How do accelerated death benefits work?
It allows policyholders to receive all or part of the policy’s proceeds prior to death under certain circumstances, including the need for long-term care and confinement to a nursing home. Because payments may affect tax status and Medicare eligibility, and will be deducted from the overall benefits paid later to beneficiaries, policyholders should thoroughly investigate options in advance.

6. By using medical tests are insurers trying to eliminate any applicant likely to develop a serious health condition?
Medical tests can provide accurate and current information about an applicant’s health, thus enabling insurers to charge premiums that reflect the level of risk an applicant represents. Because some health conditions are easily managed through proper medication, therapy or lifestyle changes, medical information sometimes makes it possible for insurers to cover applicants who might not otherwise be insurable. More serious or incurable conditions present an enormous risk that an insurer simply cannot assume.

7. What should I consider in naming life insurance beneficiaries?

• Always name a “contingent,” or secondary, beneficiary, just in case you outlive your first beneficiary.
• Select a specific beneficiary, rather than having the proceeds of your life insurance paid to your estate. One of the great advantages of life insurance is that it can be paid to your family immediately. If it is payable to your estate, however, it will have to go through probate with the rest of your assets.
• Be very clear in wording beneficiary designations. Naming specific children may exclude those born later. If your child dies before you, do you want the proceeds to go to that child’s children? Changing the beneficiary designation is easy, but you have to remember to do it.

8. Does it make sense to replace a life insurance policy?
Think twice before you do, because in many situations it may not be to your advantage. Before dropping any in-force policy, make sure your “new” policy is paid for and in effect and first consider:

• If your health status has changed over the years, you may no longer be insurable at preferred or standard rates.
• Even if both policies pay “dividends,” it may be years before the new policy’s dividends equal those of your present one.
• If you replace one cash-value policy with another, the cash value of the new policy may be relatively small for several years and may never be as large as that of the original one. There may also be a period wherein a surrender charge is applicable on the first policy.
• You should ask for a detailed listing of cost breakdowns of both policies, including premiums, cash surrender value and death benefits. Compare these as well as the features offered by both policies.
• If you decide to surrender or reduce the value of the life insurance policy you now own and replace it with other insurance, be sure your new policy is in force before you cancel the old one.

9. As a single person, do I need insurance?
The answer almost always is yes. You may want to consider these options:

• Disability income insurance – especially important for self-supporting singles without sizable assets, this can replace a good part of the income you would lose if you were unable to work because of accident or illness. If you don’t have long-term disability coverage at work, it would be wise to consider an individual policy designed to replace at least 60 percent of your income.
• Health insurance – if you don’t have on-the-job coverage, an individual policy is your first line of defense against ever-escalating medical and hospital costs. You can keep premium costs down by electing a large deductible, thereby “self-insuring” as much as you can afford.
• Life insurance – even if you have no dependents now, you may later. If you buy now when you are younger and healthier, you can “lock in” lowest-cost coverage, including guaranteed insurability.

Permanent insurance provides lifelong protection and is known by a variety of names. These policies are designed and priced for you to keep over a long period of time. If you don’t intend to keep the policy for the long term, it could be the wrong type of insurance for you.

Most permanent policies including whole, ordinary, universal, adjustable and variable life have a feature known as “cash value” or “cash surrender value.” This feature, which is not found in most term insurance policies, provides you with some options:

• You can cancel or “surrender” the policy — in total or in part — and receive the cash surrender value as a lump sum of money. If you surrender your policy in the early years, there may be little or no cash value.
• If you need to stop paying premiums, you can often use the cash surrender value to continue your current insurance protection for a specific period of time or to provide a lesser amount of protection to cover you for as long as you live if there is sufficient cash value.
• Usually, you may borrow from the policy, using the cash value in your life insurance as collateral. Unlike loans from most financial institutions, the loan is not dependent on credit checks or other restrictions. You ultimately must repay any loan with interest or your beneficiaries will receive a reduced death benefit.
• The interest crediting rate and therefore cash values of many life insurance policies may be affected by your carrier’s future experience, including mortality rates, expenses and investment earnings.
• Keep in mind that with all types of permanent policies, the cash value of a policy is different from the policy face amount. Cash surrender value is the amount of available cash when you surrender a policy before its maturity or your death. The face amount is the money that will be paid at death or at policy maturity.

If you would like a quote on CA Life Insurance, please fill in one of our online insurance quotes, or call our office at 805-544-8929.

“How Much?”
“What Type?”
“When?”
“What if they find something on the medical exam?”

“…Pass the TV remote, I can’t think about this right now…”

On the other hand, when that policy is finally issued, that same guy who was squirming, suddenly feels relieved. He’s done “the right thing.”

Over-thinking the particulars of life insurance fuels our natural inclination to put off the important purchase. Here’s some advice: YES, do your research. Look into whole life, universal life, term life, etc. (I can help). But while you’re becoming an ‘expert,’ please don’t miss the forest for the trees. The bottom line is: Your family needs this protection. You protect your home in case it burns down, you protect your car in case it’s destroyed. If you are gone, your income is gone. Life insurance is income protection.

So, my two cents: something is always better than nothing. Apply for $250,000 of 20 year level term protection now. For most people, this will fit into the family budget. Even though it’s still not enough to protect most families, it’s certainly better than nothing. Underwriting and issuing this amount of life insurance is painless. And I have yet to read about the widow who gave the life insurance check back to the company: “Not thanks, my family doesn’t need this – give it to someone else more deserving.”

2 other quick points:

1. Life insurance can’t be taken away once you’ve got it, BUT you may not be able to afford it or even get any protection if you become ill before you apply (diabetes, heart disease, cancer, etc).
2. The world’s financial ‘flu’ infects the life insurance industry too. Rates and fees are rising. You can lock in your costs now with one of over 30 top-rated companies that we work with.

Want a quick quote NOW? Fill out my fast and easy quote form here, and I’ll have your quote in minutes. Remember, I never hard sell insurance. I’m here to help you make an informed decision.

Actress Molly Shannon shares her personal experience with life insurance