- Know this before replacing term life insurance policy
- August 6, 2013
If are considering term life insurance replacement, use the worksheet provided here to help make your decision easier.
This worksheet summarizes some important factors to consider. Not all of these factors necessarily apply to your situation. It is not an exhaustive list, but it covers the most likely scenarios.
However, it is a good place to start deciding whether or not to replace an in-force term policy with another one.
Term insurance generally does not pay dividends and does not accumulate cash values. These policies run for a specified period of time, and expire without value at the end of that term. During the term it provides pure life insurance protection in the amount for which you contracted with the life insurance company.
A good example is a one million dollar 10-year term policy. If the insured dies during the 10-year period, the policy pays the one million to the designated beneficiary. On the other hand, if the insured person dies after the 10 years is up, the policy pays nothing.
Many term policies are renewable at a higher premium rate, and many are convertible to permanent life insurance at any time during the policy term.
Term policies come in many forms. The most common are annual-renewable term, decreasing term (e.g., mortgage cancellation insurance) and level-premium term. Some policies offer guarantees, while others do not.
It pays to shop around.
You may also want to record the comparison information you are given, the source and the date. Try to verify that the information is current, because you will be making a decision based on this information.
About Tony Steuer
Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.
Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.