Many of you have large life insurance needs and not-so-large life insurance premium budgets.  We can usually meet your insurance needs at a price you can afford by using term life insurance rather than a cash value product.

One of the primary reasons people buy term life insurance is its extremely low cost.  But costs can be deceiving—what seems like a great deal at first isn’t such a bargain when you look more closely.  Why is this so?

Term life insurance comes in several types and there are variations within each type.  An important thing you need to remember for any term life insurance—if you miss a payment, your insurance is gone.  You may be able to get it reinstated, but don’t count on it.

The least expensive form is often “Annual Renewable Term” (called ART).  ART is so cheap because the premiums rise each year.  With ART, what was a bargain initially quickly becomes a burden. 

A more expensive (at least initially), but more predictable form is called “Level Term.”  Level term has a fixed premium for a set number of years, after which the premium increases dramatically.  This level premium period may be five, 10, 15, 20, 25, or 30 years, or even longer.  In some cases the premium is level for five years, then rises, then stays the same for another five years, and so forth.

While cost is an important issue, there are other factors that are even more important.  In reality, the cost per $1,000 of term life insurance for you is not much different from one company to another, assuming a similar product structure.  Cost is actually driven by other benefits and administrative considerations.

The most important benefit to look for is “convertibility.”  If you suddenly become very ill, you are going to want to keep your current life insurance.  Convertible term life lets you do that.  Your premium will be much higher because if you convert you will own a cash value permanent policy, but knowing the insurance is there is worth it.  Don’t buy a policy without this benefit.

Another important benefit is the ability to purchase more insurance without proving you are still healthy (insurable).  This is not a feature with many term products, but it could be an important one, and this option costs money.

Policy fees also affect the cost of your term life insurance.  Rather than have a lot of seemingly inexpensive policies, you may be better off combining them into one larger policy to reduce these fees.

Some policies offer a return of premium option—after a number of years you get all the money you paid back.  This is very expensive, but if it makes you feel better about spending the money in the first place, consider it worthwhile.

One other benefit that the lowest cost term life policies may not have is “waiver of premium.”  With waiver of premium, if you become disabled you will not have to pay any premiums during this time.  This can be a valuable benefit.

The bottom line—if you buy the “cheapest” policy, it may cost you.  You may not be able to convert it, the premiums may rise each year, you may be paying lots in policy fees, and you may have to keep paying even if you are disabled.  Know the features you need and the time frame for which you plan to keep the insurance, and look at its cost over that entire period.  Cheaper may not be better!