Factors to Compare When Purchasing Term Life Insurance
One of the most important financial decisions a person can make is deciding whether to purchase life insurance. Purchasing term life insurance may be an option for someone starting a family or for someone who has large financial obligations, such as a mortgage. However, before buying getting a term life insurance quote, several factors should be considered, including the policy's initial premium, renewability, and length of term. Taken together, these make up what are known as quotes.
The initial premium for the policy is an important factor to consider when purchasing this type of insurance. An initial premium is the amount paid by a policy owner at the time the policy goes into effect.
Premiums can be considerably cheaper than permanent life insurance, which offers a cash value component. With permanent life insurance, a policyholder's premium represents the life benefit coverage and the cash value accrual. Because term life policies are relatively low risk to insurance companies, these policies allow companies to offer significant benefit coverage at reasonable rates. Generally, the initial premium represents the premium that the policy owner pays for the duration of the term period. Having a fixed cost can be a primary consideration for many potential purchasers.
Perhaps the greatest factor affecting term initial premiums is a potential purchaser's personal and family health history. Personal health issues, including blood pressure and cholesterol, are critical for insurance companies to consider when assessing the risk of insuring a prospective customer. Family medical history, a type of nonmodifiable risk, also helps determine premium payments and offers insurance companies a way to hedge their risk when insuring a higher risk client.
Purchasers of term insurance should know that their policy has a coverage term whereby coverage expires at the end of the term period, which can range anywhere from 1 to 30 years. Deciding whether to renew this type of insurance policy depends on a number of factors, including its renewability.
Renewability is a feature that allows a policy owner to renew his or her policy at the end of the original term, even if there are factors that would normally disqualify him or her from the best term life insurance rates. Renewable term insurance does not require evidence of insurability.
The policy term for a renewable term plan can be either annually renewed or renewed for a term period, typically between 5 and 30 years. The primary advantage of annually renewable term is the flexibility it offers policyholders. As their life circumstances change, they may or may not need term life, and an annual renewal option offers the policyholders an opportunity to continue or stop their coverage. The primary advantage of renewable policy over a certain number of years is that any increase in the premium is spread out over the renewed term period, which can help reduce any impact an increase in the cost of insurance has on a personal budget.
However, a term insurance policy's renewability is just one of several factors that should be considered when determining whether a term life insurance quote is the best one to get.
Length of Term
Deciding how long to have a term life policy depends on a number of factors, including the potential purchaser's current financial situation, family, and health. Length of term should be carefully considered when purchasing this type of insurance. The period of time that the policy covers depends on the purchaser's current financial commitments and ability to pay premiums over an extended period of time.
A potential purchaser of term insurance should assess his or her current financial obligations. For those with a newly obtained mortgage or children just entering college, having a term policy long enough to cover these financial commitments would probably be important.
The health of a potential purchaser also is an important factor with length of term for this type of life insurance. The healthier the individual, the more affordable the premium will be over a longer coverage period. If an individual has health issues, he or she can expect to pay more for a longer coverage period.
Also, the cost of a short- or long-term policy should be considered. Generally, the longer the term period, the more the policyholder will pay for the insurance benefit. Those who find that a 30-year term life policy is not affordable, may find that a 15- or 20-year term life policy fits within their budget.
The length of a term life policy is clearly an important consideration when assessing whether the policy fits an individual's financial needs and goals.
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