For most people, trying to fathom the labyrinthine world of the insurance industry is daunting and confusing. A major issue of the 2008 presidential election was that many people in the United States have no insurance at all; and especially in these economically uncertain days, those who have it begin to sweat as much at the thought of their premium payments coming due as –worst case scenario – the benefits needing to be used.
The simplest form of insurance to understand – and what most non-wealthy people today seem to find appropriate to their needs – is term life insurance. As “term” implies, term life insurance provides death protection for a limited period of time. Term life insurance builds no cash value. It is a death benefit that is intended to cover financial responsibilities of the insured, such as funeral costs, mortgages, consumer debt, or care for dependents. This differs from “whole” life insurance which combines a term life insurance policy with investments such as stocks, bonds or other money market instruments so that cash value can be built to borrow against if necessary.
Term life insurance was developed to provide temporary insurance protection for those with limited budgets and can be purchased in large amounts for a relatively small initial premium. You can buy term life insurance with adjustable premiums for periods of one year to as much as 30 years, otherwise known as the “annual renewable term” (ART).
Term life insurance premiums are usually inexpensive for people in good health up until they are about 50 years of age. After that, the premiums become increasingly more expensive, and some companies will not sell term life insurance policies to people who are 65 and over. A big challenge many renewers face is that often their policies require proof of insurability. If the insured were to acquire a terminal illness within a term but does not die within that term, he/she might be considered “uninsurable”. They might be unable to renew the policy or purchase a new one.
One of the most critical factors in the whole term life insurance equation is, of course, the financial soundness of the insurance company you choose to do business with, and it’s very important to do your homework before making any commitments. You want to make sure that your insurance company will still be around even if you aren’t, and that they have a reputable claims-paying ability.
Fortunately, the internet had helped to make much of this very important information about insurance companies cheap, easy and anonymous to procure. Most online insurance company reports can be obtained for free. One of the best websites to turn to is insure.com, which provides both ratings online from Standard & Poor’s and comprehensive reports on individual insurers. Make sure any report you get is current within the last six months. When it finally comes down to making that term life insurance decision, choose an insurer that is rated A or better. While some ratings agencies use slightly different letter grades, the most financially sound and respected insurers are rated AAA.
