How To Choose A Term Life Insurance Policy 2023

Have you thought about what would happen to your family if you were to die too soon or unexpectedly? Making sure that your family can stay in their home without the stress of paying outstanding debt is important. But you want to make sure that taking care of this is affordable as well.

This is where a term life insurance policy can fit the bill. Term life is great in that it can fit into almost any budget as it is pure death insurance. Most of the time there are no bells and whistles like cash value accumulation or extra benefits. 

Term life insurance is, as the name implies, covers you for a determined amount a time, such as 10 years, 20 years or 30 years. The rate is locked in for that term and won't increase. We at Surf Financial Brokers, have one insurance carrier that offers a 40-year term which is great for younger people who want a policy that will stay the same price into their 60's. 

Which term should pick? That depends on what your needs are. Take into consideration things like your mortgage. If you have just purchased a home and have a 30 year mortgage, a thirty year term policy will be appropriate. But if you have just a few years left on your mortgage, you can lower the term. 

On the other hand, if you have small children, you may want to consider how long it will be until they are out of the house and on their own. We all know that kids aren't cheap and even if the mortgage is paid off, raising the children will still take money that won't be there if you were to pass away.

How much coverage do you need? The simple way to figure this out is to add up the total amount of the following:

• The balance on your mortgage. 
• Credit card debt.
• Balances on car loans
• Final expenses. When doing this I like to add in what I call "costs associated with death", which could be your medical deductible if you are in the hospital for a few days before passing away. And even though many have decided they don't want a funeral, there are those who do. I had a client who wanted to cover the cost of catering and an open bar. He wanted his friends to have a good time.
• Replacement of income. Figure in your annual income and multiply by 5 to help your spouse or significant other pay the expenses that will need to be addressed like car repairs or other emergencies that can pop up.
• Educational costs. If you have kids you may want to help them pay for college when you aren't around. 

It may look like a lot of money, and it probably is. Most people underestimate the amount of coverage they need, which can come back to bite your loved ones. If you aren't sure how much life insurance to purchase, use the calculator provided on our life insurance quoting tool. It will give you a more accurate number as to how much your family will need.

Another factor that may determine your term life insurance purchase may be a convertibility option. This means that at some point in the term the insurance carrier may allow you to convert to a permanent policy. I discussed this in a previous post. 

If you have any questions about purchasing a term life policy, drop us a note on our website. In the meantime, please stay healthy!

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

What Is The Convertibility Feature In Term Life Insurance?

People who buy term life insurance usually do it because it is extremely affordable and it fits well within their budget during their working years. At some point down the road, however, a permanent policy that can build cash value may seem more attractive. Perhaps the insured can afford to pay a bit more or they just don't need as much coverage. In other words, situations change.

Most term life insurance policies include a stipulation that one can "convert" the policy to a permanent policy, either a universal life or a whole life, within a specific time frame. Instead of purchasing a new policy, one can convert all or some of their current policy, which is much easier. That is because with a conversion there are no health questions or exams. Yes, the new policy will be based on the age of the insured at the time of the conversion, but that would be the same if one were to purchase a new policy.

Without having to worry about health questions, one can convert their policy regardless of changes in health. For example, say you purchased a 20-year term policy 10 years ago, but since then your health has declined significantly. A heart attack, cancer or diabetes would probably keep you from getting a new policy or have one issued at a higher premium . However, you could convert some or all (depending on the insurance carrier) of the face amount without being concerned if your current health situation will affect the rates.

In other words, if you were healthy when you bought the term policy, the new permanent policy will be priced as if you were still healthy, even if you are not.

Why do people want to convert a term life policy? The first reason is to lock in on a premium that will not increase. At the end of the policy's term period, the rate will jump up dramatically and will do so each year. This becomes an "annual renewable term" (ART) which in essence is a series of 1-year term policies. No one really wants that. 

On the other hand, permanent policy will stay the same price as long as you continue to pay the premiums. No more having to worry about outliving your life insurance.

Another reason people will convert a term policy is to start building some cash value. That money grows inside the policy tax-free and can be used down the road for all kinds of purposes*. The earlier one converts the policy the faster the cash value grows. 

The important point is too find out when you purchase a policy as to what your options are. Some carriers will only let you convert in the first 10 years while others will allow for a conversion anytime before the term ends. 

Also, find out what kind of policies you can convert your term policy to. You may not want a traditional universal life policy and that may be your only option, while other companies only have whole life. These are good questions to ask your agent, or drop us a note and we'll help you out. 

Know what your options are when purchasing life insurance! 

*Depending on the amount of cash that has accumulated in a policy, the funds can be either surrendered (cashed out) or borrowed. Surrendering the cash value could have tax implications, but getting the money in the form of a loan is a great way to use the funds for a retirement supplement. Any outstanding loan amounts will be deducted from the face value of the policy at the time of death.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!