Term Life Insurance

One of the questions we address is should I lock my life insurance rates in for 10 or 20 years? Many will choose ten years as it is the cheapest way to purchase life insurance but it assumes either there will be no need for life insurance after ten years or that your health will be good and you can purchase a new cheap ten year term insurance policy at that time. In this case, you are saving the difference between the ten year term insurance cost and the 20 year term insurance cost by taking on the risk that you will be healthy in ten years.

Those who choose to take a 20 year term insurance policy, they pay more up front but the risk that they will not be insurable in ten years is zero as they have locked it in for 20 years. For example, a 30 year old would pay $25 for $500,000 of ten year term insurance and then in ten years when they are 40¹ years of age it would cost $106 for the guaranteed renewal versus $32 to purchase a replacement 10 year term insurance policy assuming he was a standard insurance risk in both cases and prices are similar to what they are today.¹ If he qualified for preferred rates, then it would be cheaper.

On the other hand, he could purchase a $500,000 term insurance policy with a 20 year term for $36 at age 30. So he is saving $11 in the first ten years and it is will be $4 more for the next ten years when he purchases a new replacement 10 year term insurance policy at age $40¹. This assumes he is of good health. It is a matter of who assumes the risk that you will still be healthy in ten years – you or the insurance company? If you can afford the 20 year term, it is the safer choice.

¹Based on term life insurance rates as of Feb 1, 2015

Over half the people renew their term life insurance policies and pay these high premiums – get a new term insurance policy – with preferred term insurance rates it might be less than you are currently paying for the old life insurance policy.

At one time, life insurance premiums were divided into smokers and non-smokers. However, the life insurance companies now have statistics that enable them to determine those who are least likely to die based on lifestyle, family history and blood pressure and some measurements they get from blood samples, such as cholesterol levels. About half the people will qualify for a preferred term life insurance quotes. At the time of this writing, a 35 year old should be able to purchase $500,000 of term life insurance for about $28 per month at regular rates but preferred term insurance rates could be as low as $21 per month. Some companies also offer a preferred term insurance rates for smokers if they would qualify for a preferred insurance rates but they smoke.

There is also the issue of convertibility. You will see most term insurance policies are renewable which means you can renew them for another term of say 10 years and they are also convertible. Convertible means you have the right to convert all or part of the policy to a permanent insurance policy at any time during the term without a medical. You just pay whatever the rates are at the time of conversion. If your term insurance policy was issued on a preferred basis some will allow you to convert on a preferred basis if they have preferred universal life insurance rates. This is an inexpensive option that is usually built into the policy cost and worth the extra price. A few companies will offer policies without this conversion option for a small savings.

Purchase the life insurance for your mortgage or line of credit from an independent life insurance broker who will broker your insurance needs rather than a financial institution like a bank. There are a number of reasons in addition to price to purchase from a broker. However, price is also important and the older and healthier you are, the greater the savings will be by working with a life insurance broker.

Choose life insurance companies with the lowest renewal rates. In the previous example of the 35 year old male, $500,000 of term 10, for the lowest cost, the range of renewal rates is $125.55 for the lowest provider to $161.55 for the highest. Although, with a less than $2 difference between the the initial 10 years lowest to highest, if you are uninsurable 10 years from now and have to renew your life insurance policy, using this strategy, make sure you choose a company with the lowest term insurance renewal rates if the initial 10 year premiums are close, which they typically are.

If you have group insurance through an association or group benefits at work, consider replacing all or part of it with your own personal term life insurance policy. First, as you age the cost of these group policies increase significantly and will frequently become more expensive just when you need it most. Further, if you leave the group or change career, while you might have an option to convert it is usually to a prohibitively expensive policy. Have a base life insurance policy that is yours and controlled by you and augment it with a group policy so that if you leave or it becomes too expensive, you can just drop it.

Term life insurance has a specific relatively short term purpose which will generally not apply after age 65 and usually starts to reduce well before that age. The need usually starts to decrease as the family leaves home, and mortgages or loans get reduced or paid off.

Term life insurance can be very inexpensive for the amount you are purchasing ($1 million can cost between $28 and $45 for a 25 year old male non smoker and between $41 and $59 per month for a 40 year old male non smoker). It depends on age, gender, smoking habits and lifestyle issues.

Do not renew term life insurance if your health is good as the renewal rates can be several times the premiums if you shop around for a new term insurance policy. The assumption is that you only renew term insurance if you are too sick, or otherwise uninsurable, to qualify
for a new life insurance policy.

Term life insurance generally comes in 10, 15, 20, 25, and 30 year terms. It is now available for longer periods to provide coverage for mortgages and longer term planning. This means that the life insurance rates are guaranteed for that period of time and they will automatically renew at a higher rate for the next term period.

A 10 year term insurance policy has guaranteed rates for the first ten years and then you can renew it for another ten years without a medical at a guaranteed premium contained in the policy.

• Ask for preferred life insurance rates when applying for life insurance. Our agents will complete the health class questionnaire to see if you would qualify at preferred life insurance rates.
• There are significant differences between some life insurance companies in the percentage of people who will qualify for preferred term insurance rates ranging from under 50% to over 75%. Remember to ask us about this when applying for your term life insurance.
• If you are a smoker of the occasional cigar, some life insurance companies will consider you to be a non-smoker. It’s important to ensure you’re working with an experienced agent when declaring your life style information.