The Insiders Guide To Buying Term Insurance

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Most people consider cost the primary reason for choosing one insurance policy over another. While certainly important, there are additional and by no means less important factors. Among them are some questions to consider.

How strong is the insurance company?

In today's uncertain financial climate the quality of your insurance company takes on new meaning. While no insurance company simply goes out of business due to highly regulated reserve requirements of the various states they operate in, those carriers in danger from poor investment results or real estate loans may well be taken over by stronger carriers. While this generally means the new owner will abide by the guarantees of the original policy the "devil may be in the details." When this happens the new carrier generally considers this a so-called "closed" book of business, a severely restricts your future options.

What options do I have?

Most insurance companies offer both term and permanent life insurance, and most carriers will allow the owner of the policy to convert term coverage into a permanent policy within a specific time period. Although most will allow conversion into many of the competitive products they currently offer, those carriers taken over by others may find they options limited to older cash value policies that may not meet you new objective.

I'm not a smoker, but I enjoy a cigar every once in a while. Should I tell my agent?

The short answer is "yes". While you may feel this is silly, it's not. Why, because the insurance company has the right (and some say obligation) to deny your beneficiary's claim based on fraud, and this is a relatively easy way to show that you, the insured, tried to deceive the company when you applied for coverage. Note that policies have a 2 year period of contestability. This means the company may fail to honor a claim during this period based for fraud or suicide. Subsequent to this time, a claim is paid even if the insured failed to disclose an issue, or died by their own hand.

Why is convertibility so important?

Typically, our health declines with age. We may gain some weight, take a medication or two, or generally not be in the same shape we were at a younger age. However, once you have a term policy in force, you have "locked in" your health category with regard to convertibility. Many people drop their term policies only to find their new options severely restricted.

Why do premiums vary so much?

This usually has more to do with the insurance company than it does with you. Assuming the same health category, you may find premiums differ by 100% or more. While logic may tell you the stronger the carrier, the higher the premium, just the opposite can be true. Today, stronger insurers are using their clout to increase market share. Premiums can also depend on the investment yield the company has experienced, their average bond maturity, mortality experience and other factors. All good reasons to shop before you buy.

What is the first step?

Talk to an experienced independent agent who deals with many carriers. Ask for references, and check the agent's disciplinary record. All states have these records displayed on their insurance department website. Like the purchase of any important asset, let the buyer beware.

Leonard Robbins has written additional articles that can help you choose the best policy for your current and future needs. You may contact him at or visit his website at read all you'll need to know.



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