How do I choose a Term Life Policy?
Thursday, January 15th, 2009As human, we crave simplicity because it is, well, simpler that way. Life is frequently put forward as the easy answer for any person is not interested in learning the intricacies of various life insurance policies. With term, it is easy for it to be the right answer since insurance is perfectly adequate in the majority of situations.
So with that being said, how do you evaluate the various term policies available in the marketplace as well as monitor your existing term policy?
Much has been written about how to compare the costs of different life insurance policies. With term life insurance, this is very simple as long as to ensure that you are comparing similar policies. Make sure that you are comparing different policies offering identical coverage. For example, spare the cost of a 10-year level premium term policy only to another wear level premium term, not to a 5-year term or decreasing term policy.
The policy with the lowest cost is the one with the lowest premium.
The term period is the number of years that premiums remain level until one policy expires or is up for renewal for another term: currently either 1, 5, 10, 15, 20, 25 or 30 years. Again, with term life insurance, the policy with the lowest cost is the one with the lowest premium.
The challenge comes when you are comparing dissimilar term policies, such as comparing an Annual Renewable Term Policy with a Guaranteed Level Premium Term. Then you have the variations .among level premium term policies with different guaranteed periods (e.g., 5 years, 10 years, 15 years, etc.), and you ha judgment in determining whether you wish to compare guaranteed or projected rates.
An informed comparison should consider any company ratings from the insurance rating agencies. As well as such intangibles as how has treated policy owners in the past. It is also helpful to keep in mind that competition for term business has been aggressive for a number of years, and company actuaries have been aggressively pricing their policies to attract new businesses.