There's no question that low cost term life insurance is what most people are looking for if they're in the market for a term life policy. But it’s important to understand that even if two policies have the same term length and death benefit amount, they aren’t necessarily equal in value. That means the term life insurance policy with the lowest premium isn't always the best choice.
Carriers vary in which riders they offer and how much they cost. So if you’re looking for certain riders—policy additions that can you save you money under certain circumstances or give you additional options—rider availability and affordability become part of the value equation.
Typical riders include:
- Terminal Illness Rider. If a doctor determines that the insured isn't expected to live longer than a period set by the rider—usually from 6 months up to a year or two—the insured can receive part of the death benefit while still alive to assist with living expenses. (This will decrease the death benefit of the policy). Many policies have this rider and it is free.
- Chronic Illness Rider. This relatively new rider allows the insured to begin receiving part of the death benefit each year if they cannot do at least two of six vital daily activities (bathing, eating, etc.) without help, for at least 90 consecutive days. (This rider also reduces the death benefit of the policy. This is available from a limited number of insurance carriers.)
- Critical Health Event. Another new rider, this pays part of the benefit in advance if a person suffers a major health event—such as a heart attack, stroke, or cancer—but can still do five or all of the six vital daily activities. (Also reduces the death benefit on the policy and has limited availability.)
- Child Rider- insures your children. Has an associated cost.
- And Many More.
Insurance carriers offer conversion options that allow you to convert your term policy to a permanent life insurance policy at the same health rating you received for the term policy. This option can save you a great deal if your health worsens during the period you’re allowed to convert.
Carriers differ widely in how long they will allow you to convert, as well as into which specific policies you can convert. The longer the conversion period and the better the policy options, the more value this option has. Some carriers only allow you to convert to whole life products. If you can convert into a guaranteed premium universal policy you will have the most flexible type of policy available.
Carrier’s Financial Strength
If the carrier you chose runs into financial difficulties and your policy is sold, you could end up with less value in numerous ways. One way is less favorable conversion opportunities. Usually when an insurance company is bought, the new carrier changes the conversion policies to less favorable policies. Buying the lowest-premium term life insurance may not be a good deal if the carrier is financially shaky.
The Bottom Line
How you evaluate a policy's value will vary based on what your priorities are, but you should consider more than simply premium cost. Working with an experienced independent life insurance agent, you can find inexpensive term life insurance that’s truly the best value for your needs.