Not All Term Products Are the Same
Life insurance can be broken down into two distinct categories, term and permanent. With permanent insurance there are many factors to consider when matching a type of product with a client’s needs. Term is much simpler; it is temporary insurance for a temporary need. With such a basic idea driving the design of this type of life insurance, choice between which term product might typically be boiled down to price. For example, all 20-year term products have guaranteed premiums and death benefits for 20 years. So why not just pick the cheapest? They all do the same thing, right? The short answer is, yes they do, even the cheapest carrier will guarantee premiums and death benefit for the selected term. There are many other very important factors to consider when picking a term product.
One main item to consider when deciding between term carriers is Carrier Strength. Although each state has some sort of backup plan to protect the client in case an insurer fails, these plans can be limited and confusing to tap into. For these reasons, carrier strength should be high on the list of anyone who is in the market for any type of life insurance, not just term. One only has to look back over the last few years to answer the question, “do life insurance companies ever fail?” Most life insurance carriers have been and are continued to be rated by the industry’s rating agencies. This is a good start on determining the strength of any given carrier. This factor alone may help pick between the top few products you are considering. But there are other factors to help pare down the list even more.
A Term Conversion privilege is one of the great features of most term products. This offers the policy owner the option to convert his temporary life insurance to permanent coverage if his temporary needs change. Each carrier offers different conversion options, or privileges. Most times the risk class the insured was awarded at issue stays with him upon conversion to the permanent product, without any additional underwriting. Many carriers offer conversion to any permanent product they have on the shelf at that time. Others will limit the policy owner to just a couple options. All carriers have a maximum issue age or time frame in which to complete the conversion. For instance, many carriers offer conversion for the life of the term product or up to a certain age of the insured, like age 70. Others will offer the conversion privilege to an older age. This can be a very useful factor in deciding between term products.
Another delineating factor between term products is the offering of Riders. Riders offer a great way to customize a basic life insurance product to fit your client’s specific needs. Most carriers will offer some sort of rider that allows the insured to accelerate the death benefit due to terminal illness. Many carriers offer this as an included rider, already baked into the basic product, for no extra charge. Other riders that can add value and help decide between term offerings would be: waiver of premium (in case of disability,) accidental death benefit, chronic illness (uses a portion of the death benefit for long term care needs,) extended conversion agreement (lengthens the conversion period,) benefit distribution agreement (spreads the payout of the death benefit over several years.) Riders can help you personalize a term product to meet very specific needs, so a carrier’s rider offerings is an important consideration.
Each term carrier will have other nuances that make their product stand out and it’s important to dig into each one before recommending to a client. Items like: accelerated underwriting, electronic application, limited underwriting requirements, and product maximums and minimums are all very important when picking one term policy over another. One final consideration should be the level of customer service you receive from each carrier. Are you confident the term carrier you are recommending can easily handle basic service issues? Can they handle something like a beneficiary change in an efficient and friendly way? Is it easy to get a hold of a customer service representative? These are all important questions to answer before recommending one term product over another.
Although term is the most basic type of life insurance, there are many important factors to consider before recommending one over another, not just price. Most reputable life insurance companies offer competitively priced term insurance. From there, the decision of which one to recommend can become clearer when comparing all the available benefits and features. Once making all these considerations you can be assured that you’ve made the most appropriate and customized recommendation to your term life insurance client.