In my years of experience I have noticed that, when most people buy life insurance, the premiums are higher than what they expected when they filled out the application. A lot of people are misled about the cost of Term Life Insurance before they submit an application and go through the underwriting.
Most people see the “super preferred” class, which shows the lowest possible price, and fill out the application thinking that is going to be their premium. Sometimes insurance agents show this rate to their clients and mislead them. It’s when the policy comes back at a higher price that the sales job begins.
Life insurance has many classes. The premium can depend on the class the carrier considers appropriate for your situation. The “super preferred” class is generally for people that are extremely healthy. It’s not an easy class to obtain from any carrier. If you are shopping for life insurance, find out what the criteria are to qualifying for this rate. This way you can get a good idea of what class you may fall into.
Another trap I see with Low Cost Term Life Insurance is the convertibility aspect. Some carriers offer an extremely low-cost contract that seems cheaper than anyone else. Most of the time, these policies are not convertible. Conversion means that, once you are approved for your term policy, you can convert or change the policy into a permanent plan that could last for the rest of your life. The conversion privilege is granted, regardless of your health, after you have obtained the insurance. Usually, the face amount of the policy is what is available for conversion. There are age restrictions that vary from carrier to carrier, and products can vary as well.
Why is conversion so important? Here is an example. I recently met with a fifty-year-old who purchased a term life insurance policy five years ago. He has a preferred non-tobacco rate from his carrier for 10 years. This person is seeking my advice because he has had some problems with prostate cancer, and cannot find a carrier to insure him at an affordable rate. He would like to replace his 10-year term policy with a policy that will last forever. This is a common situation: when people can qualify for life insurance, they don’t want it, or they buy the cheapest coverage they can find. When finally they really need a good policy, they discover they can’t qualify for one.
Even though his prostate was removed, my client is still showing a PSA reading. Since there is no conversion privilege offered with his policy, he will not be able to continue his coverage after the age of 55. This is a big problem for him, because he wants his home to be paid off for his spouse should he pass away. If he had just spent a little more money and purchased a policy that was convertible to begin with, he would be able to continue his coverage regardless of his health status.
When shopping for life insurance, always be aware of the rate class of policies you examine, and find out where you stand. This will help determine a cost that is more realistic. If you are considering Term Life Insurance, be sure to inquire about the conversion privilege. If the policy is convertible, find out how competitive the products are (that you can covert into), and how they compare with other permanent products on the market.
The bottom line: insurance can be a complicated business, and there is no substitute for having a competent broker at your elbow. If a product looks like an impossible bargain, it probably is one.