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OT: Term life insurance -- what to look for?


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I'm in the process of getting a term life insurance -- have 9 yrs to go before the youngest graduate from high school (13yr if you count college).

 

I'm looking for a 15 year term. What are the gotcha's that I need to aware of? and any good insurance companies that I should look for?

 

I'm in the US and in early 40s.

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Just make sure the monthly premiums stay the same over the life of the policy.  Many term policies will increase their premiums every five years.  There also such things as inflation-adjustment riders, which will automatically increase your premium modestly and your policy face value by say 5 or 10%.  You are better off just buying a larger policy than getting the rider. 

 

Also, compare premiums for 20, 25 and 30 year policies.  Depending on your age and health, the premiums might be only modestly higher and you have insurance coverage over a longer period.  You never know what can happen...disability, illness,etc...could delay your ability to generate income.  If you find that over time, your personal financial situation goes as planned, and all indications are that you are probably self-insured, then you can always terminate the policy. 

 

Finally, don't get caught up in any sort of term product with an investment aspect...similar to universal or whole life, but the insurance policy is a term policy...these sort of cross-bred products have been created.  Either decide if you are buying just plain term insurance for protection, or you need another product because you are trying to make your finances more efficient.  Term policies are effective for 90% of consumers, whereas other products really only benefit financial planning for about 10%.  Make clear what you want, because many insurance agents will try and sell you what they think you need, and the industry incentives are aligned so that they sell you something significantly greater than what would be ideal.  Cheers! 

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Just make sure the monthly premiums stay the same over the life of the policy.  Many term policies will increase their premiums every five years.  There also such things as inflation-adjustment riders, which will automatically increase your premium modestly and your policy face value by say 5 or 10%.  You are better off just buying a larger policy than getting the rider. 

 

Also, compare premiums for 20, 25 and 30 year policies.  Depending on your age and health, the premiums might be only modestly higher and you have insurance coverage over a longer period.  You never know what can happen...disability, illness,etc...could delay your ability to generate income.  If you find that over time, your personal financial situation goes as planned, and all indications are that you are probably self-insured, then you can always terminate the policy. 

 

Finally, don't get caught up in any sort of term product with an investment aspect...similar to universal or whole life, but the insurance policy is a term policy...these sort of cross-bred products have been created.  Either decide if you are buying just plain term insurance for protection, or you need another product because you are trying to make your finances more efficient.  Term policies are effective for 90% of consumers, whereas other products really only benefit financial planning for about 10%.  Make clear what you want, because many insurance agents will try and sell you what they think you need, and the industry incentives are aligned so that they sell you something significantly greater than what would be ideal.  Cheers!

 

The reason the premium will stay the same  is because they have essentially averaged out the rate for each year.  So you are paying more in the beginning, and less in the later years, than the actual cost of the insurance.  That's fine as long as you know that.  For some people an annual renewable term is significantly cheaper and the way to go (especially if they are unlikely to want to carry the policy long term).  Obviously to buy a level premium 30 year policy will cost you a lot more than a 15 year.  Probably more than twice as much per year because of the high cost to insure those later years.  You need to figure out what best fits your situation. 

 

 

 

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The reason the premium will stay the same  is because they have essentially averaged out the rate for each year.  So you are paying more in the beginning, and less in the later years, than the actual cost of the insurance.  That's fine as long as you know that.  For some people an annual renewable term is significantly cheaper and the way to go (especially if they are unlikely to want to carry the policy long term).  Obviously to buy a level premium 30 year policy will cost you a lot more than a 15 year.  Probably more than twice as much per year because of the high cost to insure those later years.  You need to figure out what best fits your situation.

 

That could get very expensive if you hold the policy more than 10 years.  I've seen premiums jump several fold on some policies after a few years, while the initial premium looked relatively cheap.  If you do get such a policy, make sure the renewal premium prices are not affected by any changes in health.  Otherwise any future illness could dramatically affect the renewal premium prices.  Cheers! 

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Thanks for the replies.

 

A few follow up questions:

a) I've used some online quote (lifequotes.com). The amount that each insurance companies charges differs quite a bit. And they also listed the ratings for insurance companies (S&P Rating, Fitch rating). Do  these rating matter? i.e., A+ rating vs B rating. Should one always go for higher rated companies?

 

b) Is it better to have the life insurance to cover both me and my wife? or one for each?

 

c) any recommended companies (online or offline) that you have a good experience with?

 

thanks.

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a)  You want to make sure that they can pay out your policy if and when it is claimed.  So the stronger the better.  Just remember that the credit rating agencies got it all wrong during the credit crisis, so things can change over time.

 

b)  Depends on what you need.  Does your wife provide income to your household?  If something happened, and you have children, how much would you need to take care of them (basic necessities, baby-sitting, nannie, college, etc)?  Are there outstanding loans that your wife is responsible for, that may become your responsbility if she were to die?  The same sort of questions should be asked about yourself as well.  That may provide a more reasonable expectation of what your policy insured value should be.

 

c)  I don't really want to tout one insurance company over another, or one agent over another.  Really it comes down to the numbers on the policy, and do they meet your needs and budget?  And a decent level of long-term customer service should also be part of the sale, as you will have questions and possibly future adjustments to your insurance needs.

 

Cheers! 

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Benchmark,

 

GEICO has a good section on life insurance...lot's of Q and A stuff, etc.

 

I get my auto and umbrella with GEICO -- and they're the underwriters for it.  I also get my home/rent policy using GEICO as an agent for Traveler's.

 

My point...I'm assuming you can get your life through GEICO using them as your agent. 

 

Without any undue offense meant to any agents, I have found it a great relief to work with GEICO both for the policies they underwrite directly and also as my agent for my home/rent.  Their customer service is amazing, in my opinion.  You can always find a person with excellent knowledge (better than any individual agent I have ever worked with in the past).  You don't get the hard sell so, for example, if you're firm that you want term I doubt you'll get pressed hard for something else.  On the off chance you do, you just get off the phone and call back and you've got a new person to work with.

 

You may be forced to work directly with the company that ultimately provides you with your life insurance even if you go through GEICO as your agent but, if you have any problems with them, you can always go back to GEICO and tell them your beef and you'll get help. 

 

You can manage all your policies at their website...make payments, etc. and they keep copies of all your policies online which is nice if you ever misplace one of them.

 

I now use GEICO as my agent for any insurance I need that I can get through them.

 

Here are a couple of links:

 

http://www.geico.com/information/aboutinsurance/life/

 

http://www.geico.com/getaquote/life/

 

Finally, my two cents says that you've gotten good advice in the rest of this thread and should in all likelihood go with term.  One way to mitigate your exposure to the unlikely event that the insurer goes belly up before the term ends is to keep it to 15 years (if you want 30) and then buy another policy at the 16 year mark.  Yeah, it'll probably cost more so you have to weigh the possibilities. 

 

Man, I wish GEICO was a separate public company -- they really are run excellently.

 

Best of luck,

 

kiltacular

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Thanks Kiltacular and Parsad, very informative. A couple of additional questions:

a) does term insurance general insure terminal illness?

b) what about accidental death and injuries?

 

Kiltacular,

 

I'm using Geico to get quote. It's confusing (to me) that the premium on a policies varies quite a bit, even for the same company for 2million insurance! For example,

 

SAVINGS BANK LIFE INS. CO. OF MASSACHUSETTS A+ $175.74  

SAVINGS BANK LIFE INS. CO. OF MASSACHUSETTS A+ $212.28  

SAVINGS BANK LIFE INS. CO. OF MASSACHUSETTS A+ $283.62  

 

I assume that devil is in the details, but what are the details?

 

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a)  Not usually, but you can buy riders for that coverage or separate policies.  I've been out of insurance for over 6 years, and critical illness coverage has gained considerable popularity in that time.  There may be new products now.  Read the contract and ask the same questions of your agent.  Make sure it is all in the contract.

 

b)  Some policies do, some don't.  You can usually get free coverage for that (to certain limits) through your credit card company, homeowner insurance policy, etc.  The likelihood of dying through accident is relatively remote for the average person and that type of insurance is actually a moneymaker for insurance companies.  You are better off just getting a good term policy that has the exact coverage you want...so it doesn't matter if your death is natural or accidental.

 

Cheers! 

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a) Maybe Parsad and I focusing on different things, but YES assuming you die during the policy coverage, not just contract some terminal illness.  I am also assuming it is not a pre-existing condition.

 

b) YES.  Although if it is caused by one of the items you said you don't do (skydiving, scuba diving, personal pilot, etc. ) or suicide soon after getting the policy it may get challenged.

 

Most reputable term policies cover death from both illness (natural) and accident.     

 

 

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Thanks guys, appreciate the input.

 

One additional question: what is the right length for a term? my kids will be out of college in about 13 years. Thus I'm thinking about either doing a 15 year, though i have a new 30-yr mortgage @4.25%, should I have a longer term life, since I'm not in a hurry to pay down the mortgage?

 

thanks

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So got some answers to my own question:

a) Apparently, the different quote from lifequotes/GEICO is for different class (i.e., insurability), based on the agent that i talked to.

b) The policies covers AD, he said that they actually double the amount in mos cases;

c) Terminal illness is covered.

 

What typical length of a term do people generally do?

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I'm early 30s and I did a 30 year term.  I figure by then I should have enough assets built up to cover taking care of my family if something happens to me. 

 

I used zander.com to get a bunch of quotes and ended up going with transamerica.  I know a lot of the prices depend on heath and family health history as well. 

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