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If you’ve decided on a term life insurance policy you're making a great first step to protecting your family in the event that anything unexpected happens to you, and for many people, it’s a better fit than whole life insurance. However, not all term policies are created equal. When looking at how to buy life insurance, there are at least four big questions you should ask yourself or your agent.
How long do you need it?
Unlike a whole life policy, which lasts for your entire life, term life insurance policies last only for a specified period — often 10, 20 or 30 years. The best term for you will depend on why you need life insurance. If you’re buying it to make sure a short-term debt can be covered, a 10-year policy might be enough. If you want to make sure your spouse can pay off your mortgage and put your children through college without your income, a 30-year policy might be better.
Most companies offer a variety of terms, so you should be able to find a policy that fits your needs. Discuss your circumstances with your agent so you can get help finding the appropriate coverage.
Are there any exclusions?
Life insurance exclusions — that is, causes of death that would nullify your death benefit — are increasingly uncommon, but they do exist, and they vary among the best life insurance companies.
If you have any particularly risky hobbies, including aviation or skydiving, it’s possible some insurers will exclude you, and if they don’t, you’ll probably pay extra for coverage. Find out whether your hobby is covered and how much it will cost you before you commit to a plan. If the premiums seem unreasonable, keep shopping.
What are your options when your plan expires?
Your needs might change over time, and the term or policy type you initially choose might not be appropriate years later. If you find you still need life insurance when your term policy expires, you might have trouble finding affordable life insurance rates. Fortunately, if you have a renewable or convertible term policy, you will have options.
Renewable policies allow you to extend your policy when your term expires, and convertible term life insurance policies allow you to change a term policy to a whole life policy. Both types guarantee your acceptance to a new plan without the need to undergo a medical exam, though your premiums will likely increase.
Once you’ve found a convertible policy, you still have some research to do. There are many types of whole life insurance coverage, and not every company offers every type, or allows you to convert to every type from a term policy.
What happens if you can’t pay?
Your life insurance rates might seem manageable now, but your financial situation could change. Should you fall behind on a life insurance bill, it’s important to know the consequences.
Most life insurance companies offer a grace period after a missed bill, usually between 30 and 90 days. During this time, your policy is still active. As long as you pay in full by the end of the grace period, you’ll be fully protected. What if you can’t pay? Insurers often allow customers to apply for reinstatement within a certain time period after the policy’s lapse. Ask about your company’s reinstatement procedures. For example, you can ask how long after the grace period you’re allowed to reapply and whether you’ll need a new medical exam.
For many people, term life insurance is a vital way to protect their families — but signing up for a bad policy is almost as bad as having none at all.