Curious to know if a no exam term life insurance policy is right for you? Let’s discuss how a no medical term policy may or may not fit your situation and budget.
Understanding No Exam Term Life Insurance
In recent decades, there has been a decline not only in the rate of adequate coverage, but also in general awareness surrounding life insurance and the types of policies available.
According to research conducted by the National Association of Insurance Commissioners, almost two-thirds of young family individuals (64%) believe it’s very important for both spouses to be covered by a life insurance policy, yet less than half had purchased a policy for even one spouse. Furthermore, only 28% of young singles express confidence in knowing the difference between term and permanent life insurance.
This brief overview will cover the basics of term insurance – what it is, how it works, who should consider it, and which options you should be aware of while shopping for a term policy.
The Basics of Non-Med Term
Term insurance is an insurance policy which provides coverage for a set period of time, which is referred to as the “policy term.” This period can range from one to thirty years, the most common term being twenty years.
Term insurance generally provides the largest protection for the lowest premium, but benefits are only paid out if the policy holder dies within the policy term. For example, a ten-year term policy will cover the policy holder and protect his/her beneficiaries for ten years, at which point the policy will expire.
Among life insurance policies, term insurance comes at the lowest initial cost, because it only provides a “death benefit” and holds no cash value.
How would my term policy work?
As the policy holder, you would first be assessed for “insurability,” which is a term for the overall risk of insuring an individual based on a number of factors such as age, occupation, lifestyle and overall health. The cost of your premiums will heavily rely on this assessment – just as a driver who is more likely to have an accident pays more for auto insurance, people who are more likely to have a serious health problem pay more for life insurance.
When purchasing a policy, you’ll name a beneficiary and agree to pay a monthly, quarterly, semi-annual or annual premium throughout the life of the policy. Provided these premiums are paid in full and on time, your beneficiary will receive a predetermined payout from the insurance provider in the event you die during the term. If you live beyond the end of the term, the policy will expire, pay no benefits, and hold no value to either you or your beneficiaries.
This type of insurance is generally purchased in order to protect people who are dependent upon your assistance or financial support, providing them with enough money to cover whatever expenses you think necessary in the event of your death. As you may have guessed, the higher the payout you want to guarantee, the higher premiums you’ll pay. That’s why it’s important to decide what you would want this payout to accomplish:
- Would you want to replace some or all of your income in the event of your death? For how long?
- Would you want the benefits to cover college tuition? For how many?
Questions like these will help you to decide not only how large your policy should be, but whether a payout should be made in a lump sum or in a series of payments.
Can I extend my policy when the term ends?
Probably so, but it’s possible it will be cost-prohibitive.
Most term insurance policies are renewable for one or more terms, but the insurance provider may reserve the right to adjust premiums in the event of renewal. For higher initial premiums, some policies may guarantee renewal for a certain amount of time at the same price, while others may only guarantee the agreed-upon premiums for a single term.
It’s also possible, in the event of renewal, the policy owner will be required to submit new evidence of insurability, which could affect premiums or even renewability.
In short, it’s important to ask the right questions if you don’t fully understand the renewability of the policy you’re considering:
- “Can I renew my policy at the end of the term?”
- “How many times can I renew?”
- “What will my premiums be if I continue to renew?”
- “Will changes in my health affect my premiums or ability to renew?”
Is term insurance right for me?
Term insurance tends to work best for people whose needs are temporary and who aren’t concerned with building cash value into their policy. Term insurance may be your best option if:
- You’re young and in the years of family formation.
- Your coverage needs will diminish or disappear over time.
- You want to be smart, but you’re on a tight budget.
- You’re looking for a “safety net,” not an investment.
- You have a specific, temporary expense in mind, such as college tuition or a mortgage.
- Your beneficiaries will eventually be able to provide for themselves.
How do term policies vary?
If you are considering term insurance, there are several ways these policies can vary. Understanding these options will help you to decide on the perfect policy for your family.
Some policies can be “converted,” or changed over to a permanent or burial policy, without requiring you submit new evidence of insurability. Your term policy may be convertible within the first few years or throughout the entire term. This can be exceptionally valuable in the event your health changes drastically or your need for coverage is suddenly extended.
If convertibility is important to you, find out whether or not the company you’re considering also offers competitive permanent policies before you commit.
A return-of-premium option typically costs quite a bit more, but allows the premiums you’ve paid to be returned to you at the end of the term. Be careful here – this only occurs if you maintain the policy for the entirety of the term. Should you miss even a single payment, your policy will lapse, and you will have paid much higher premiums for a benefit you won’t receive. If there’s a chance your financial situation will change and you don’t have a backup plan to keep making your payments until you’re back on track, this type of policy is a pretty big risk.
There are a few provisions which may come as standard features of a policy, or may be added as “riders” for a higher cost:
- Accidental death benefit – increases the payout, sometimes doubling or tripling your benefits in the event of accidental death.
- Accelerated death benefit – allows the terminally ill policy holder to collect some or all of payable benefits while still alive.
- Disability waiver of premium – in the event of a long-term disability, this provision allows the policy holder to waive premiums while payments cannot be made.
If you’re young and in the early stages of family life, term insurance may be the most affordable way to make sure those who are dependent upon you for financial security are taken care of in the worst of circumstances.
Be sure to shop around for the most competitive policy, and consider the different options available to tailor your benefits to your circumstances. Understanding the key points we’ve covered here could help you to save a great deal of money or multiply your benefits in circumstances which would present the greatest needs.