What To Look For Before Choosing A Term Life Insurance Policy

Are you shopping around for a term life insurance policy and looking for the best rate? Here’s a secret – there are no deals and life insurance. Today we’re going to go over exactly what you need to be looking for while shopping for a term policy and it’s not only the price. 

Fundamentally, insurance is a transfer of risk from the insured to the insurance company. You’ll hear us say that with term insurance, there’s really only one benefit, and that’s the death benefit. You’re paying the premium and if you die within the term, the insurance company will pay the death benefit to the beneficiary. But there are some ancillary benefits when it comes to term insurance that you need to consider so you can make the best decision for your situation. 

There are three main benefits or ancillary benefits that you should be looking for when looking for a low-cost term policy:

1. 1. First is a Terminal Illness Rider. Basically what that means is if you become terminally ill while you own the policy, the insurance company will allow you to tap into the death benefit on a tax-free basis to allow you to pay for those terminal illness-related expenses. 
   2. The second is a Disability Waiver of Premium. This is important because should you become totally disabled, the insurance company will continue to pay the premium for you. But with some companies, it’s even better what they allow you to do while it’s a term policy and you’re totally disabled, they will allow you to convert that policy to a whole life policy and waive that premium. A very important benefit.
   3. Probably the most important ancillary or extra benefit is the ability to convert that policy somewhere down the road to a Cash Value or Whole-Life Policy. 

So you may be wondering, what does it mean to have a convertible term policy? Once you get that term policy, your insurability is locked in and you could convert that policy from a temporary term policy to a permanent cash value life insurance policy with no underwriting required. It’s a contractual guarantee for a set amount of time determined in your contract to make that switch from term to perm. 

The key here is that whatever underwriting requirements the insurance company uses to determine your eligibility for the term policy follows directly through to the conversion. So you don’t have to take another exam even if your health changes. 

Health changes are one consideration, but the next consideration is cash flow changes. As we go through life we all know that cash flow needs are always changing. So right now your cash flow may be pinched and you may need that death benefit for a loan or to protect your family should you die prematurely. But down the road, you may be cash flush and say, “Hey, I really want to put this policy to work for me and my situation, my business, and my family, let’s convert a piece of this.” The application is so simple, you just basically fill it out, sign it, and then send it in and you get the policy in the mail.

So keep in mind, that you’re not asking permission or approval to get the policy you’re literally giving the insurance company an order to change it from term to permanent or cash value insurance. 

This brings us to our next point. It’s important to choose a strong insurance company when you’re getting this term policy so you’ll have a strong dividend-paying life insurance policy when you choose to convert it down the road. This takes us back to our main points or key criteria when choosing a life insurance company.

1. 1. First and foremost, it should be a Mutual Insurance Company. Why? As a policyholder with a mutual insurance company, you are literally the owner of the company as it relates to your policy. Therefore any profits that the insurance company makes are funneled back to you in the form of tax-free dividends.
   2. Secondly, we want that company to be Non-Direct Recognition. Why? Because if you intend on borrowing against your policy, you don’t want to be penalized by getting a lower dividend from some companies. And believe it or not, some companies do that.
   3. Third, you want the company to be licensed and preferably domiciled in the state of New York. Why is that important? Because the state of New York has the highest level of regulatory protection for the policy owner.
   4. Fourth, you want that company to have a significant track record of paying dividends over 125 consecutive years. Think about it, if your company has paid dividends for over 125 consecutive years, they’ve paid it through world wars, depressions, recessions, you name it. They’ve weathered the storm and still have delivered profits back to the owners of the company, their policyholders.

Now, the temptation could still be there to think short-term and with life insurance, it’s a long-term play. Whether you realize it now or not. Maybe you’re about to have your first child and now you need a death benefit to protect your family. Or maybe you are in the process of obtaining a loan and need some death benefit to collateralize against the loan for the bank to approve it. But the key is to think long term so you could be in the best financial decision going forward. 

We have seen over the past 37 years, so many times when people bought the lowest cost term policy and their health changed and they wanted to change that policy because their cash flow was better and their needs were now permanent. Unfortunately, the company they placed their insurance with originally doesn’t have a whole-life policy or is a stock-owned company, which means the profits go to the stockholders, not the policyholders. These are issues that need to be addressed upfront. Like we said in the beginning, there are no deals in life insurance. 

Keep this in mind: our health is precious. We all know it could be there one day and the next day you could be uninsurable. And we’ve seen this, unfortunately, so many times. People who are considering life insurance and then not acting on it and then two weeks later, something happens and they’re no longer insurable. That’s the last thing we want to see. Our health is our most valuable asset. Without it, nothing else matters. And we know this now more than ever. Keep in mind, when we buy life insurance, we pay for the policy with dollars to pay the premium, but we qualify with our health. 

If you are looking for a quality life insurance policy that will carry you from now into the future, be sure to visit our website at tier1capital.com to schedule your free strategy session today.  

Remember, it’s not how much money you make, it’s how much money you keep that really matters.