31 Insurance: Term Life

Insurers peddle two types of policies: “cash value” and “term life.” The first type builds up value as long as you pay premiums. You can cash out the policy by canceling it at anytime. If you die before you cancel, your beneficiaries collect. For most people, cash value policies represent a bad value, so this checklist covers only term life insurance. Term life provides coverage for a specific length of time—10, 15, or more years—and pays out only if you expire before the policy does. Term life policies don’t build up cash value and under some contracts, premiums increase as you age. Follow these strategies to find the best values.

31.1  Research the Product

Term life policies are complex products, so educate yourself. The National Association of Insurance Commissioners (NAIC) publishes a “Life Insurance Buyer’s Guide.” The American Council of Life Insurers (ACLI) publishes “What You Should Know About Buying Life Insurance.”

31.2  Decide Whether You Need Insurance

The purpose of life insurance is to provide your dependents with a replacement income stream in case you die. Depending on your current stage of life, you might be able to skip the expense.

  • No Dependents. If you lack dependents, you don’t need insurance because no one other than you relies upon your income.
  • Empty Nests. Your kids are independent, so drop the insurance.
  • Ample Assets. If your nest egg can fund your dependents’ expenses for years to come, you can skip this line item altogether.

31.3  Measure Your Needs

If you buy too much coverage, you overpay. To find the right fit, offset your beneficiaries’ future expenses against their available assets and income. Several web-based calculators walk you through the process:

31.4  Shop Around

   31.4.1  Seek Online Quotes
Popular price comparison sites include Insure.com, AccuQuote.com, Term4Sale.com, and InsWeb.com.

   31.4.2  Visit Insurance Company Websites
Many insurers sell low-cost plans, but don’t list on price comparison sites, including Ameritas and USAA. Visit their websites.

   31.4.3  Call an Independent Agent
Locate a good deal online and then ask an agent to find you something better. If the agent beats the offer you found, you save.

   31.4.4  Seek Discounts
Look for these deals whenever you pay a bill or shop around for new life insurance policies.

  • Bundles. If you now pay multiple insurers for home, life, and auto, consider buying it all from a single company. Run the numbers.
  • Group Discounts. Look for price breaks if you belong to certain groups—retirees, seniors, veterans, current military, AAA, or AARP.
  • Annual Premium Payments. Some insurers grant discounts if you pay a year in advance.
  • Loyalty. At many companies, longtime customers pay less.
  • Good Health Discounts. Look for lower premiums if you don’t smoke and score well on blood pressure, body mass index, or cholesterol counts.
  • Credit Card Payments. Pay with plastic and pocket the rewards, but only if you pay off your cards every month (see Chapter 49).

31.5  Pick a Low-Priced Insurer

After you find the best offers, it’s time to investigate insurers.

   31.5.1  Talk With Friends
Ask if they have experience with any of your prospective insurers.

   31.5.2  Research Customer Satisfaction
Some insurance companies pay off claims quicker than others. Review ratings in Consumer Reports and at JDPower.com. To view customer complaint records, click on the map of your home state at NAIC.org/state_web_map.htm.

   31.5.3  Research Company Finances
Buy from solvent insurers only. Check with your state’s regulatory agency or private sources such as A.M. Best and Standard & Poor’s.

31.6  Follow Up

   31.6.1  Keep a File
Maintain copies of your policy, endorsements, declarations page, price comparisons, and buying guides.

   31.6.2  If Necessary, Use “Free Look” Laws
Most states provide a “free-look” period during which consumers can cancel policies and get their money back.

   31.6.3  Seek Adjustments
Call your agent every few years and ask about cheaper premiums or improved benefits. Why? As life expectancies increase, the deals improve. Five years from now you might get better terms.

   31.6.4  Review Your Policy upon Major Life Events
Key life events can change your ideas about who to list as beneficiaries, how much coverage to buy, or whether you need any insurance at all. Revisit your coverage upon births, marriages, divorces, graduations, new jobs, pay raises, large inheritances, financial windfalls, and retirements.

   31.6.5  Avoid Changing Carriers
A switch in life insurance carriers is often costly: run the numbers carefully before you make any moves.

   31.6.6  Pay on Time
This avoids penalties, lapses in coverage, and hits to your credit rating.

31.7  Save With Life Choices

The way you live can affect how much you pay for life insurance.

   31.7.1  Pursue a Healthy Lifestyle
Don’t smoke, drink moderately, eat a balanced diet, exercise regularly, and manage stress levels. Track metrics: body mass index (18.5-24.9), blood sugar (80-120), blood pressure (≤120 systolic and 80 diastolic), and cholesterol (≤ 200).

   31.7.2  Favor Jobs With Life Insurance
The more coverage your employer buys, the less coverage you need to carry.

□   31.7.3  Spend Less Now!
The lower your household’s annual expenses, the less coverage you need (see 31.3).

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