Frequent Questions Asked When Getting a Term Life Insurance

Understand every word of a policy before you buy it.

The most important thing to do when shopping for term life insurance is to read the fine print of the policy. insurance policies are often worded using terms difficult to understand and in language that can be confusing to many consumers. It is therefore critical to ask your life insurance agent questions and get clarifications in writing.

Term Life Insurance

Term life insurance is an important building block in building a strong financial foundation.

Term life insurance is a policy that insures the policyholder for a specific amount of time. Common plan terms are 5, 10, 15, 20 or 30 years. For "fixed" term life insurance, the amount of the premium payments remains the same for the term of the policy. With "adjustable" term life insurance, premiums can increase over the life of the policy at certain specified annual milestones.

Advantages

Term life insurance is an affordable option for families on a budget.

Term life insurance policies are much less expensive than whole life insurance. This is beneficial for many families on a budget with young children, allowing them to purchase term life insurance so that their children are protected from financial hardship should a parent die.

Cash Value

Term life insurance is not an investment -- you're buying peace of mind.

Most term life insurance does not accumulate cash value. If you live past the expiration of your term life insurance policy, you typically do not get any type of refund. Statistically, 95 percent of people outlive their term life insurance policies; that is how life insurance companies make money. Some term life insurance policies can be renewable, meaning that the policyholder has the option of renewing the policy when it expires without having to requalify. However, some insurance companies offer Return of Premium Term Life Insurance (ROP). ROP policies are a compromise between term and whole life policies. Premiums can be about 20 to 50 percent more than regular term insurance, but the policyholder will be refunded a portion of the premium costs if he outlives the policy's expiration date.

Exclusions

Remember your exclusions when trying high-risk activities

Some term life insurance policies contain clauses that state it will not pay-out on a policy in cases of suicide, but open-ended suicide exclusions are not the norm anymore. Since the mid-19th century, most term life insurance policies have had an incontestability clause, which limits the period of time the insurer can contest honoring the policy. Typically, the period of time that suicide will be excluded is the first two years the policy is in force. Most term life insurance policies exclude "high-risk activities," such as skydiving or race-car driving. These exclusion clauses must be spelled out in detail in the policy.

Premiums

Health, age and lifestyle all factor in to the cost of premiums

Premiums will be higher for smokers than for nonsmokers and those who have health issues will pay more than someone with a clean medical history. Age also affects the cost; premiums will be higher the older you are when you take out the policy. Lifestyle is also a factor. If you work in a high-risk profession or engage in high-adrenaline sports, your premium costs will be higher. The monthly premiums will also increase in relation to the pay-out value of the policy.

References

• Otrib; Top Questions to Ask When Buying Term Life Insurance; M. Kotch
• Life Insurance.net; Questions to Ask Before You Buy; Darrel Richter; 2006
• Straight Dope; Would Life Insurance Be Paid Out On Someone Executed For a Crime? Can Death Row Inmates Get Life Insurance; Cecil Adams; February 2008
• 1st Quote!: Return of Premium Term Life Insurance (ROP)