Comparison of Term Life Insurance Policies
Term life insurance provides a tax-free death benefit to beneficiaries when the insured dies within a set period of time --- typically between one year and 20 years, though a few companies offer terms longer than 30 years. Term policies do not build cash value; however, you do build up a tax basis in them over time. If the policy lapses without paying a benefit, the insurance company generally keeps the premiums, though some companies offer a return-of-premium option. Term insurance is designed to provide an affordable death benefit for a temporary insurance need. Because premiums increase over time, it is possible to pay more into a term insurance policy than the death benefit is worth.
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Applications of term insurance
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Term insurance provides the most initial death benefit for the smallest initial premium. For this reason, it is an effective tool to protect families and businesses against financial catastrophe due to a temporary financial obligation. For example, the repayment of a debt or mortgage, the need to provide for children, or the need to save for college or for retirement on behalf of a spouse.
Comparison of Underwriting
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Some companies require a full medical exam in order to issue a term life insurance policy, depending on your age and the face amount of the policy --- an approach called "full underwriting." Other companies use a "simplified issue" program, issuing up to several hundred thousand dollars' worth of term insurance based on a questionnaire, a medical records check and possibly an oral swab. Generally, if you are in good health, you will get a better deal going through full underwriting.
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Renewability
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All life insurance policies provide protection during the term; it's what happens at the end of the term that sets them apart. Some policies do not allow you to renew them at the end of the term. If you still need life insurance at the end of the term, but your medical condition has changed, you may not be able to get life insurance. Guaranteed renewability is a valuable contract feature, but costs somewhat more than non-renewable term policies.
Conversion options
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Some policies allow you to convert your term coverage to permanent coverage, such as whole life or universal life insurance (for a period of time) without providing evidence of insurability. Others provide no conversion option at all. The conversion option can be valuable if you want permanent coverage but cannot afford the premiums now. Some companies that do offer guaranteed conversion restrict you to one or two permanent life insurance products. Others allow you to purchase any product in their line.
Disability Waiver of Premium
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A "waiver of premium" rider protects you from losing your life insurance coverage in the event you are disabled. Generally available as an option for a small surcharge, the rider is a guarantee from the insurance company that if you are disabled, the company will pay your premiums on your behalf. To compare waivers, look at the definition of disability. Some companies define disability as the inability to work in your own occupation, while others have a more restrictive "any occupation" definition. Look for the "own occupation" definition.
Purchase Option
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Purchase option is the right to purchase additional amounts of insurance in the future without having to submit to another medical exam or round of medical underwriting. Some companies allow you to exercise your guaranteed option at different ages, or at major events such as the birth or adoption of a child or upon getting married. Ensure the purchase option riders meet your family's needs.
Price
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The more features and benefits that come with the policy, the higher premiums are likely to be. Insurance from mutual companies --- companies owned collectively by policy holders --- is frequently more expensive early on than from stock companies. However, mutual insurance company policies may be eligible for dividends, which can offset the price of insurance over time. This is a particularly valuable feature if you convert to a whole life policy later in life.
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