More than 4 in 10 Americans have no life insurance at all, according to the 2015 Insurance Barometer Study. The number one reason cited for not buying life insurance? Cost.
The misperception of life insurance as an extraneous expense is utterly false for two reasons: 1) Not having life insurance will place a great deal of financial and emotional stress on your loved ones after you die, and 2) The cost can be relatively low, oftentimes comparable to what you might spend on morning coffee over the course of a month.
For many people, term life insurance is the ideal solution for affordable coverage. A cheap term life insurance policy can offer the protection you need, without many of the frills that drive up the cost of its counterpart, whole life insurance.
What is Term Life Insurance?
Term life is a type of life insurance that ensures a death benefit (money paid to your spouse or heirs to cover income loss and assets in the event of your death) at a fixed premium, for a set period of time (your term).
Many people seek cheap term life insurance as a means to instant peace of mind, whether for general income purposes or to cover a major expense that they would not want to leave behind to their family unaccounted for, such as a mortgage. Terms are generally available in 5-year increments ranging from 5 to 30 years, after which the policy will usually become renewable on an annual basis.
Why Term Life Insurance?
Whole life policies can be extremely rigid and difficult to understand. Whole life insurance often includes a cash accumulation account, which many agents won’t tell you is a mere living benefit and not a death benefit. With that cash value comes more legwork and thus a higher commission paid to your agent, making whole life insurance somewhat of a “sell” in the agent’s favor.
Furthermore, these types of policies almost always have a minimum 10-year “surrender charge,” meaning you essentially have to pay the agent’s commission (easily thousands of dollars) for that timeframe should you choose to cancel the policy. Some even have a 15-year surrender charge.
Term life insurance, on the other hand, gives you the same coverage you seek in a whole life policy, without the fine print and extra fees. The benefits of term life insurance include:
- Affordable coverage
- Flexible options
- A fixed rate for a set period of time
- No startup costs
- No surrender charge
- No hidden fees
- The freedom to cancel or change your policy at any time
Unlike whole life insurance, term life insurance allows you to determine your needs and reverse engineer your coverage. You can be sure that you’re getting the exact protection you need—nothing more, nothing less.
Buy Term and Invest the Difference
Many financial experts recommend term life over whole life insurance. “Buy term and invest the difference,” they’ll say—and they’re absolutely right. When you buy term life insurance, you can take the money that you would have been paying on whole life insurance and put it into stocks, bonds, or any other investment vehicle. This strategy enables you to bolster your financial leave-behind, while the cash accumulation in a whole life policy would default to your insurance company and not your beneficiary.
Your ability to find cheap term life insurance will depend on your health background. Insurance providers look at all of the following:
- Height-to-weight ratio
- Blood pressure
- Pre-existing health conditions
- Alcohol consumption
- Family medical history
You shouldn’t try to figure this equation yourself. It’s important to work with an experienced independent agent who can not only tell you what you need to know, but also shop multiple carriers to find you the best rate.
Likewise, you shouldn’t choose the cheapest option by default. For example, if you have a two-year-old child and are shopping for a 20-year policy to provide coverage through their college years, you might be presented with a cheaper 10-year policy. If you buy that 10-year policy, there is no telling what your health will be like when it expires, and you could very well find yourself paying substantially more for a new policy.
Get a Medical Exam
You can get a better policy at a better rate by opting in for a medical exam. The caveat here is that if your doctor discovers an undiagnosed health issue, such as diabetes or high cholesterol, you may see higher rates and possible difficulties with getting approved. But assuming you check out fine, the medical exam is your ticket to quality, affordable coverage. Besides, you would want to know about a potentially serious health condition in the early stages so you could seek treatment, right?
If lying about your health crosses your mind, squash the idea here and now. The Medical Insurance Bureau (MIB) keeps track of all your records (just like a credit report does) and shares this information with insurance companies to prevent fraud. Light smoker looking to claim non-smoker? Good luck. When you smoke tobacco, your body produces cotinine, which shows in lab tests.
Put simply, be honest. Even if you somehow managed to pull off a lie, most policies start with a two-year contestability period that would void your death benefit if an investigation revealed your falsified medical statement.
There are several mistakes that people make quite frequently when searching or applying for life insurance. Here are a few mishaps to be aware of:
Working with a “Captive” Agent
Agents at big insurance companies are only able to sell their company’s product, limiting their ability to find competitive rates and reliable coverage. Again, you’ll want to make sure you work with an independent agent who can shop multiple A-rated carriers.
Taking Advice from a Friend or Family Member
By all means, if someone you know recommends a policy or provider, you should listen. However, you don’t want to turn around and purchase the first option you learn of. Every insurance provider has 16 different rate categories based on a slew of variables in addition to the factors we’ve discussed. The best deal for someone else might not necessarily be the best deal for you.
Not Taking the Medical Exam Seriously
You don’t need to wake up at 3 a.m. in a cold sweat over your life insurance medical exam, but you should try to get yourself in optimal shape beforehand. And here’s a pro tip: avoid pain pills, supplements and vitamins 24 hours before your exam. These have an effect on liver enzymes that can decrease your score and increase your life insurance rate.
Not Getting a Convertible Policy
You should always get a policy that’s convertible to permanent life insurance. If your health takes a turn for the worse during your term, you want to be able to increase and extend your coverage without having to re-qualify.
Mishandling a Telephone Interview
Sometimes a life insurance company will conduct a telephone interview as part of their inspection report. If this happens to you, make sure you find a quiet place where you can take the call and focus on answering the questions asked. If you’re scatter-brained during the call, you might be subject to extra red tape before being approved.
How to Get Cheap Term Life Insurance
Now that you know the ins and outs of term life insurance, it’s time to find a cheap term life insurance policy that protects your family from potential financial hardship. JRC Insurance specializes in term life insurance, shopping 40 different providers to help you find your ideal policy at an affordable rate. Every year you wait to buy life insurance increases your premium by 10 to 15 percent, so start today and get a free quote in 5 minutes or less.