Unlike permanent cash value insurance, the term life insurance policy with the lowest premium among all identical term insurance plans is usually the most affordable. This appears to imply that potential insureds can purchase term insurance as a commodity, with the cheapest policy being the best among insurers of acceptable quality and financial strength.
Term life Insurance Comparisons
To see if the policies provide the same benefits, one must examine all of the policy provisions. Most of the time, the policies offered by different companies will not be the same. As a result, the modest changes in policy provisions must be weighed against the premium disparities.
Here are some points to consider about:
Policy Illustration: Check the policy illustration for the schedule of future renewal premiums for renewable term plans. It’s possible that a policy with the lowest initial premiums will have higher renewal premiums than others.
Age For Extension: Determine the maximum age at which coverage can be extended without proof of insurability. A policy with a lower premium may opt out of automatic renewal before other plans with higher premiums.
Grace Period: Check the grace period provision to see if the insurance will continue to be valid for another 31 days after the policy’s term has expired. If a client is late with a renewal premium, a policy that does not include a grace period may leave them uninsured.
Age For Conversion: Determine the age at which a convertible policy can be converted to a regular whole life policy without proof of insurability. It might be worth paying a little more to ensure that this conversion is correct for a few more years.
Incontestability: Determine whether the conversion policy’s incontestability and suicide clauses will be changed to provide that the two-year qualifying periods will begin on the term policy’s issuance date if the term policy is converted to whole life.
Conversion Clause: Determine whether the policy’s conversion clause allows the customer to change the policy to a regular whole life policy with a premium waiver rider without providing proof of insurability. Whether it does, see if there are any restrictions imposed by pre-existing conditions.
The ability to incorporate a waiver of premium rider in the converted policy can be a valuable feature, especially if the insured can convert to a policy with a waiver of premium rider even if he or she is already disabled. Also, if the insured individual is already disabled, check to see if there is a minimum age to convert (such as age 55) in those policies that allow conversion to a policy with a waiver of premium rider. In general, paying greater premiums for a policy with more lenient conversion restrictions to a regular whole life policy with a premium waiver rider is worthwhile.
Look Beyond The Terms: Just though a corporation offers a very attractive and competitive term policy does not guarantee that the permanent policies into which the policyowner can convert the term policy are equally attractive and competitive. As a result, if the ability to convert is a key factor in evaluating term policies, one must look beyond the terms themselves to the relative attractiveness and competitiveness of the permanent policies into which the term could be converted, as compared to the products of other companies.