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by: Zeus Design

Universal Life Insurance

Choosing the Best Term Insurance Policy

The first step in choosing the right term life policy is to make sure that the policy you are considering matches your objectives and solves your specific needs. Circumstances are not the same for everyone, so a careful review of what is important to you is necessary to select the best policy.

How much insurance do I need? How long do I need it?

After identifying your personal goals and determining the specific reasons for the insurance, you can begin to see how much insurance is really needed and how long the insurance must to be maintained. For more details on calculating insurance needs see, "Determining how much life insurance you need". A clear understanding of your insurance amount and level period requirements provides the starting point for considering other factors that determine which term policy is right for you. The other factors that are important to consider are price/value, underwriting, conversion privileges, and company financial strength.

Buy term insurance based on price or value?

Most people buying life insurance view term as a commodity. Therefore, many see policy premiums as the chief differentiation among competing policies. It is true that term insurance builds no cash value and if the term period is outlived there is no measurable return on policy premiums. However, there are numerous reasons to look beyond price. Paying the lowest price is very desirable but not at the risk of selecting a mediocre insurance company or having reduced policy options in the future.

Many of the insurance companies offering the cheapest term life rates are smaller "niche" companies. Generally, these companies have total assets of $2 billion or less. In fact, most term insurance shoppers have never heard of many of the insurance companies that sell cheap term policies. This is not necessarily a bad thing as many of these companies do carry reliable ratings from the various independent rating services. However, you should always consider value along with the cheapest price.

Value is as equally important as price. In most cases, term insurance shoppers can obtain a policy from a large nationally recognized insurance company for only a slight increase in price usually less than 5-10%. These companies have total assets in excess of $10 billion or more and maintain the highest ratings from the independent rating services. Furthermore, many of the larger companies offer better conversion options and renewable features than their lesser known competitors. Having these additional options and features may not be readily important to you now, but down the road may mean the difference in being able to maintain competitively priced insurance or being forced to pay premiums that become cost prohibitive over time. To get the most “bang for your buck” and make the best term insurance policy choice, don't buy on price alone! Always consider value.

What is term life insurance underwriting?

In order to obtain any life insurance coverage, you must provide evidence of good health. Underwriting is the process insurance companies use to identify a specific risk and to determine which rate a given individual may obtain for a specific amount of insurance. Underwriting guidelines are used by insurance companies to define the risk associated with your application for life insurance. For a breakdown of theses generic guidelines see, “Determining your health class”.

Each life insurance company has its own underwriting guidelines and list of health classes ranging from “preferred plus” (best class) to “standard” (average class). An individual in great health will qualify for the preferred plus health class and will pay less for their insurance than an individual qualifying for a standard health class. The difficulty is in identifying how the individual companies will view your health based on their guidelines.
In order to select the best term life policy, you need to have a good understanding of how each competing insurance company will view your specific health. Underwriting varies widely among insurance companies and can have a significant impact on policy pricing among competing companies. Small things like taking a medication for mildly elevated cholesterol may increase the rate by 25 % with Company A but may not have any impact at all on Company B’s rate. Therefore, knowing which company will offer you the best rate based on your circumstances is critical to obtaining the best priced policy. An experienced agent is crucial in helping you select the insurance company that will provide you the most favorable underwriting. Please call us toll free at 1(877) 583-3955 and an insurance professional will help answer your specific underwriting questions.

Conversion privileges and term life

Another important consideration for selecting the best term life policy is the conversion option offered by the insurance company. The conversion privilege is a feature in a term life insurance policy that allows the covered individual the opportunity to convert or "exchange" the existing term life insurance policy for a permanent whole life or universal life policy without evidence of your insurability. The length of the conversion period varies in among competing companies. When comparing term insurance, the policy that offers the longer conversion period is usually the better choice.

The option to "convert" your term policy can be very valuable if you are diagnosed with a health condition such as cancer, stroke, uncontrolled diabetes, heart problems or any terminal illness. In these circumstances, your ability to purchase life insurance may be in question or rates for new coverage may be cost prohibitive. The conversion privilege assures the covered individual that life insurance can be maintained at a level rate after the term period even if there is deteriorating health that otherwise was uninsurable. The cost to convert the term policy to a permanent policy will be higher, but the insurance company will never be able to price you out by continuously increasing policy premiums or deny you valuable insurance protection based on health issues.

Buy your term life policy from a highly rated insurance company

Why try to save a few dollars and end up with an insurance policy from an inferior company? There are plenty of highly rated insurance companies offering very competitive term policies. When comparing companies, you should definitely review the independent rating service’s rankings. Comparing the financial strength of each insurance company will help to choose the best term life policy.

Financial ratings for most insurance companies are available with one or more of the independent ratings services. These services include AM Best, Standard & Poor’s, Moody’s, Fitch and Weiss Research. Each of the independent rating services has its own criteria for ranking an insurance company. You may also visit the websites of each of these services or you can contact MEG and we can provide the financial ratings of any insurance company. When you obtain a quote for either term life insurance or guaranteed universal life insurance, you will see the AM Best rating for each company listed. We recommend using companies that have at least an “A” rating with AM Best but prefer “A+”.

How to obtain the best term policy

There are numerous considerations when trying to choose the best term life insurance policy. Some of these factors include the insurance amount needed, term period required, premium pricing and policy value, underwriting guidelines, conversion privileges, and company financial strength. While each of these things should be examined independently, they should also be considered collectively. By reviewing all the factors together, you will select the policy that offers the combination of great value, fair underwriting and excellent features with an insurance company that maintains the highest financial integrity. For assistance in determining the insurance policy that works best for you, please call MEG toll free at 1 (877) 583-3955.



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