Consider This When Picking Term Insurance
After you perform a thorough needs analysis and a determination has been made that term insurance is appropriate for your client, choosing a carrier to place the coverage with is critical. Factors beyond just going with the cheapest premium must be taken into consideration. These factors include conversion options, riders and carrier ratings.
Most term insurance policies issued today have some form of conversion option giving your client the ability to procure permanent insurance without the need for evidence of insurability. Not all conversion options are equal and following are 3 important factors to consider when evaluating conversions options:
- Conversion option duration. Many conversion options are available for the entire length of the level term period of policy however, some policies may only offer conversion privileges for a limited time period such as the first 10 years of a 20-year policy.
- Max age available for conversion. Policies generally have a maximum age that conversion is allowed even if the policy is within the level term period. The most common age is 70 with some carriers using 65 or 75 as the cutoff age.
- Products availability. The best conversion option allows conversion to the carrier’s full portfolio during the conversion period and it also has language in the policy that contractually guarantees this option. Some carriers may limit the time period of the availability of the full portfolio for conversion. For example, allowing conversion to the full portfolio only in the first 7 years then allowing conversion to a limited portfolio thereafter.
Understanding a term policy’s additional benefits and the company itself will help add value to your client and provide additional protection for the future.
- Waiver of Premium Rider. An optional rider that waives premium payments if the insured is totally disabled under the definition of the contract. Wavier of Premium is the most common rider issued on term policies.
- Child/Spousal Term Rider. Provides death benefit protection for the spouse or children of the insured. Policy limits are generally no more than $25k. Generally, these riders have few to no underwriting requirements and may allow conversion to a permanent policy upon a child reaching adulthood.
- Accelerated Death Benefit. Allows the insured to take a portion of the death benefit if diagnosed with a qualifying terminal illness.
- Accidental Death Benefit. An additional benefit paid if the insureds death is caused by an accident. This typically excludes acts of war, death caused by illegal activities, or from a dangerous activity commonly engaged in by the insured.
- Rating Services. An insurance company’s financial stability and rating are important in determining their ability to pay claims and service the insured’s needs. Ratings from A.M. Best, Moody’s, and/or Standard and Poor’s are a well-established and time-tested indicator of a company’s financial strengths.
- Company Size, Age, & History. An insured with a $1m life insurance policy may be better served with an insurance company with $1 billion is assets than a company with only $50 million in assets. While a larger established company may not necessarily be better than a smaller new company a strong historical track record of paying claims and treaty policy holders fairly provides an indication of a company’s culture.
Call or email me to discuss this important topic. I would love to hear from you.