Is a Cheap Term Insurance Quote Always the Best Option?
Term insurance is life insurance coverage for a specific time period, the term. It is the cheapest way to obtain a large amount of coverage for the time period that you need it most, for instance while your children are young, or to protect your income until you retire. Note that a cheap term insurance quote does not always give you the best policy. Here's why.
The competitive life insurance companies provide a conversion option with their term insurance policies. Conversion is the right to exchange any portion of your life insurance policy for a policy with longer coverage, with no health questions asked and no underwriting involved. If you originally qualified for the Preferred rate class, you can convert to a policy in the Preferred rate class, regardless of your health.
Term insurance conversion would become very important if you were to suffer a serious health issue. You might want to extend your coverage beyond the original term of the policy. The lowest term insurance quote may not qualify for this conversion, at which point you are left with few options. Let me explain.
Some life insurance companies provide conversion for only the first few years of the policy. Some limit it to age 65. Some only allow conversion to expensive whole life policies, and you may not be able to afford the premiums. If your term insurance policy is with one of these companies, your options will be limited. It may not have been the best decision even if that company provided the lowest rate initially.
Some of the competitive term insurance companies provide conversion for the full term period to a maximum of age 75 or 80. They also provide competitive universal life policies for conversion. Some of these universal life policies can be structured to have rates competitive with term insurance. If the initial premium for one of these companies is only a few dollars more than the lowest term insurance quote, that might be your best choice.
So, your ideal choice is a term insurance policy that is convertible for the full level term period, with an option to convert to a competitive universal life policy. The cost difference for this policy may be insignificant compared with the benefit of the superior conversion option.
If conversion some ten or twenty years down the road is the furthest thing from your mind, and you think it doesn't apply to you, you might want to think again. How do you know what the future will bring? One of our agents had a client who was diagnosed with terminal cancer in the last year of his term policy. He was uninsurable to obtain a new policy. The price to renew his existing policy was exorbitant and unafordable. He was able to convert his policy to an affordable universal life policy with a ten year guarantee on the premium.
Another reason that conversion may become important to you is due to the life settlement industry. This is a relatively new industry specializing in the sale of life insurance policies to financial institutions. If you outlive the need for your term insurance policy, you can just stop paying on it and it will terminate. But, what if that policy had value to somebody else? It turns out some policies do have value.
A recent example is a client who no longer needed his $900,000 term insurance policy. Rather than cancel it, his agent was able to find a life settlement for $245,000. He was able to do this because the term policy had a good, competitive conversion option. Without that, the settlement would have been much less or not at all.
So, consider all your options. Don't just select a policy because it has a cheap term insurance quote. Make sure it has a competitive conversion option as well.
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