There is a saying that there is nothing more expensive than a cheap haircut. I know from first-hand experience that this is true. (I was young and stupid once. Please….don’t make me go there.) But I also know from my professional experience that having the wrong kind of term life insurance can land you in an even worse situation. If this happens of course you won’t know that you made the mistake – but your family will. How do you safeguard against that from happening to you?
Fortunately, it isn’t that difficult. Basically there are six things to consider. Let’s go through each of these items to make sure you know how to compare term life insurance policies and quotes and get the right policy.
How You Qualify for Benefits
Term insurance is pretty simple. If you die while you are covered your family will collect the benefits. But believe it or not, not all deaths are equal. Most companies have common exclusions. Those include suicide, death in war, death in a private plane or death as a result of a dangerous activity you participate in like hang-gliding, rock-climbing or car racing.
This actually happened to my family. My dad bought a term life insurance policy thinking he was covered – but he was wrong. My father was killed in a private airplane crash and the insurance company could have refused to pay us easily. For whatever reason, the insurance company actually did write us the check. This was back in 1974. And our lawyers were amazed the insurance company coughed up. Maybe they were softer in those days. In any event, I wouldn’t rely on your life insurance company being so compassionate.
If you fly a plane or jump out of one, hang-glide or rock-climb – you can probably still get life insurance but your rates will be higher and you will have to make sure you apply with the right company that doesn’t exclude these activities.
And while we’re on the subject, make sure that the company that you are applying with doesn’t have other exclusions. Some policies only pay up when you die under a very specific set of circumstances. The worst can and does happen. You don’t want to buy a policy because it’s cheap and then leave your family high and dry. Sometimes a policy is super cheap because it doesn’t provide much coverage. Make sure you understand all the exclusions before you sign on the dotted line.
What is the term?
The word “term” relates to the period during which the premiums are fixed. You shorter the term, the lower the premium. Don’t compare the cost of a 5 year term policy to that of a 1o year term. If you make that mistake, you may actually end up buying a more expensive insurance policy. You can easily avoid that error by carefully reviewing the quote. Please see the exhibit below. The term of the policy is market #5. You can see that all policies on the quote are for a 10 year term. This is one big benefit of working with one firm that represents hundreds of companies. You can easily get quotes that compare apples to apples.
Your Age
See #4 . Different companies compute your age differently. If you get different quotes from a variety of firms make sure they haven’t made a mistake in determining your age. This is one of the most important cost drivers. If they get your age wrong, your quote is actually useless because when the policy goes into underwriting the mistake will be caught and the premium will be adjusted anyway.
Your Health Condition
See #3. Your health is obviously very important to life insurance companies. In order to get a quote you don’t need to have a physical. But you should be absolutely honest about your health when you get your quote. And make sure the agent doesn’t do any monkey business by doing the old bait and switch. If the agent you work with shows you a “preferred” rate and you aren’t in tip-top health, that quote is going to waste your time. The agent will rope you into applying for a policy that he knows will end up being more expensive than the quote indicates. Many people simply just give in and pay those higher rates. That’s a shame because there are many companies that cater to clients with health conditions.
That’s why it’s important to be completely honest with the person helping you and it’s important that the person who helps you is as honest as the day is long. If you have a health condition and don’t tell your agent, you won’t be doing yourself any favors. You might get a cheap term quote, but again, it will be meaningless. Assuming you aren’t buying guaranteed issue life insurance, the final cost of your policy will only be determined once the company has examined your medical records.
The Financial Strength of the Insurance Company
See #2. It’s very difficult to really know how strong your insurance company is going to be when you need them – 20 or 30 years from now. But rating agencies such as AM Best and S&P audit insurance companies and can take some of the guess work out of the process. I always recommend that you do your own due diligence as well. At the very least, Google the insurance company to see if there is any news on the company good or bad.
Coverage
See #1. This is the death benefit and if you are comparing term insurance quotes you clearly want to make sure the companies are quoting the same amount.
As you can see, it’s fairly easy to compare term life insurance quotes. But, again, this illustrates the benefit of working with one agent who represents hundreds of companies.
