How to Compare Term Life Policies

One must check all of the policy provisions to see if the policies provide identical benefits. In most cases, the policies available from different companies will not be identical. Therefore, the one needs to weigh the slight differences in the policy provisions against the differences in the premiums. Here are some factors to consider:

  1. In the case of renewable term policies, check the schedule of future renewal premiums. A policy with the lowest initial premiums may have higher renewal premiums than other policies.
  2. Check the age to which coverage may be continued without evidence of insurability. A policy with a lower premium may discontinue the automatic renewal right before other higher premium policies.
  3. Check the grace period provision to see if the policy remains in effect for thirty-one days after the expiration of the term of the policy. A policy that does not provide the grace period may leave the client uninsured if he or she happens to be late with a renewal premium.
  4. Check the age to which a convertible policy may be converted to ordinary whole life at attained age without evidence of insurability. It may be worth some additional premium dollars to guarantee this conversion right for additional years.
  5. Check whether the incontestability and suicide clauses of the conversion policy will be modified to provide that the two-year qualifying periods will run from the issue date of the term policy if the term policy is converted to whole life.
  6. Check whether the conversion clause permits the client to convert the policy to an ordinary whole life policy with the waiver of premium rider without evidence of insurability. If it does, check whether there are any limitations due to preexisting conditions.
    The right to include the waiver of premium rider in the converted policy can be an important feature, particularly if the conversion to a policy with a waiver of premium rider can be made even if the insured is already disabled. Also, in those policies that permit conversion to a policy with a waiver of premium rider, check to see if there is a minimum age to convert (such as age fifty-five) if the insured individual is already disabled. In general, it is worth it to pay higher premiums to acquire a policy with more liberal rules regarding conversion to an ordinary whole life policy with the waiver of premium rider.
  1. Even if a company offers a very attractive and competitive term policy, it does not mean that the permanent policies into which the policyowner may convert the term policy are equally attractive and competitive compared to other companies’ permanent policies. Consequently, if the possibility of conversion is an important consideration in an evaluation of term policies, one must look beyond the features of the term policy alone and into the relative attractiveness and competitiveness of the permanent policies into which the term could be converted as compared to other companies’ products.
  2. Check the soundness of the company.
Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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