When people talk about life insurance, it brings up bad feelings of planning for one’s death and passing away, not the best topic to discuss at a social. However, if a person has loved ones, children, or a family to take care of, life insurance needs to be considered in case something happens.
One of the easiest and most basic approaches to arranging for life insurance involves the term life insurance policy. Designed to provide a financial safety net for a policyholder should that person die unexpectedly, it involves a financial payment given to a named beneficiary to help that person during the loss. Easily adjustable for people’s life expectations and needs, plans can be arranged for as little as five years and as long as thirty years.
Cheap term life insurance rates are initially established based on a couple of factors. These include the policy holder’s age, gender, health at the time of application, any pre-existing medical conditions, occupation, and activity lifestyle. Insurance providers also perform a medical evaluation on the applicant before finalizing the policy. This is usually done via a blood test. With all the factors accounted for, a new plan’s term life insurance rates are determined and then set for the duration of the policy.
The downside to term life insurance plans, however, involves a few issues. First, once a plan expires, a new one policy has to be contracted for. A new plan later in life tends to cost more because older people have a higher risk of dying during a policy period than younger people, statistically. To offset this cost, the monthly premiums paid tend to be higher with older age.
Additionally, any money paid into a term life insurance policy is gone when the policy expires without an unexpected death. The insurance company gets to keep the payments as pure profit because the policyholder lived through the policy period without issue. Unlike other insurance plans that may put aside some of the payments as a cash savings for the policy holder, no such cash value is provided with a term life insurance plan.
The Convertible Option
Because term life insurance can feel like a total loss of years of investment when such plans expire, many insurance providers give policy holders a second chance to reconsider halfway through a policy’s duration. This choice is called a convertible option.
The option allows a policy holder to elect to change his traditional term life insurance plan into a whole life plan or universal life insurance plan. Doing so midway allows a policy holder to begin saving a cash value from the payments made to the insurance company. However, it also costs more. Because the policy will now build up a savings that has to be paid back, and because the policy will then last longer than the original time window, the insurance company will charge higher term life insurance rates for the converted policy. This allows recovery of related costs.
A conversion can be a good idea in that in still provides for life insurance but for a longer period. This can be considerably less expensive than starting up a new term life insurance plan when a policy holder is much older in life. It also allows the holder to save some of the money paid, which can provide a nice financial reserve for a spouse or partner in later years.
Buying a Plan
An application can be initiated for a term life insurance plan by simply making contact with any licensed insurance provider. Many are listed in the phone book or on the Internet. Ideally, an applicant should work with a company that has a local office and a longstanding national reputation. Fly-by-night operations with unfamiliar names should be avoided as such companies tend to disappear quickly.
Once contacted, an insurance provider will go through options and then build a specific quote price for an applicant based on his initial information. If acceptable, the insurance agent involved will then prepare all the paperwork and finalize the quote. The insurance provider’s underwriter will review the policy proposed and confirm if it is acceptable. As noted earlier, the applicant may have to undergo a health review, health records access approval, and a blood test. With all the data collected, the insurance provider will finalize the application and then initiate a payment schedule when approved.
As long as the policy holder makes timely payments, the insurance plan will remain in effect. The holder can cancel the plan at any time, or the provider can cancel it for nonpayment.