5 questions to ask before you buy term life insurance
A term life insurance policy can be a great low-cost option for consumers seeking temporary coverage at a cut-rate price, but you'll want to do your homework first. Here are five questions to ask before choosing a term life policy.
1. Is the company stable?
The whole point of buying life insurance is to make sure your family is taken care of when you're gone. Clearly, that can't happen if the insurance company goes out of business first. It's a good idea to check a company's financial health with ratings agencies like A.M. Best, Moody's Investor Services, Standard & Poor's and Fitch Ratings.
2. Is there a conversion option?
If you outlive your term life insurance policy, there's a good chance you'll want to switch over to a more permanent policy that will last through the rest of your life. The good news is that many policies offer an option for converting to a whole life policy without having to go through another medical exam. That means you stay as insurable as you were when you first qualified for the term policy. Just note that some policies say you can't covert after you've reached a certain age or a given amount of time has elapsed.
3. Are you healthy enough to get the advertised rate?
Some insurers will lure you in by advertising a tantalizingly low premium rate. Just be aware that that rate is often based on someone with truly exceptional health. While many people purchase term life insurance policies at a young age when their health is good, they still may fall short of the super-preferred or "elite" rate.
4. What kind of income will your family need?
Your family's income needs can include everything from mortgage payments to medical costs, and your policy must cover all of it. You should also calculate the length of the policy with your family's long-term income in mind. If your retirement and Social Security benefits are due to kick in 10 years from now, a 10-year term might be all you need.
5. Do you want any other benefits?
Some policies offer what's known as a disability waiver of premium, which is exactly what it sounds like - if you're disabled, the company will waive your premium requirements. Other term policies will even return your accrued premium payments at the end of the term if you outlive the policy, although obviously such an option makes it considerably more expensive. It's up to you to determine whether the security provided by these extra features is worth the increased cost.
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