If you’re wondering “Is term life insurance worth it?” The answer is typically a resounding “Yes.”
That’s especially true if you’re a parent or otherwise have someone who depends on you financially. But there are other reasons to have term life insurance too. Even if you don’t have anyone who financially depends on you, life insurance can help you leave a legacy, or at the very least, help cover your funeral and burial so your family doesn’t have to worry about them.
Short-term life insurance may make sense in some cases as well. For example, if you have children that are almost adults, you may only need a certain level of life insurance for a short time.
In any case, you’ll have to qualify for coverage. Here’s what you need to know about term life insurance qualification requirements:
Introduction to Term Life Insurance
Term insurance is a type of insurance that has a predetermined duration. So, term life insurance is a form of life insurance that covers you for a set period of time. These policies include direct term life insurance (which you buy directly from an insurance company) and traditional term life insurance (typically purchased through an insurance agency).
Ultimately, term life insurance is characterized by two factors:
- It’s a type of insurance that provides a death benefit if the insured dies during the insurance term.
- It comes with a predetermined term (typically 5 to 40 years).
Key Features and Benefits
The biggest benefit of term life insurance is knowing that it can help provide the financial support that those you love and who financially depend on you need if you die during the insurance term.
Another big benefit associated with term life insurance is that premiums for this type of life insurance are typically lower than the premiums you would pay for a permanent life insurance or whole life insurance policy. Moreover, you may be able to add riders to your term life insurance to further customize your coverage to your needs.
Eligibility Criteria
Buying term life insurance isn’t like buying any other product. You can’t go to the store and pick a term life insurance policy off of the shelf and simply pay for it. In most cases, you must meet specific eligibility criteria to qualify for a term life insurance policy. Those criteria include:
Age Restrictions
Most term life insurance policies have age restrictions including minimum and maximum age limits. In most cases, you must be at least 18 years old to qualify for term life insurance. Moreover, if you’re over 70 years old, you may be hard-pressed to find a term life insurance policy, and finding coverage will likely be all but impossible at 80 years old.
Health Status
Insurance companies have to consider the risk involved in writing new policies. Those who have no health challenges are more likely to be approved for coverage than applicants with a series of medical issues, although it is still possible to qualify in some cases, depending on your ailment. However, those with a poor health status may fail to be approved for coverage through the medical underwriting process.
Lifestyle Factors
Your lifestyle factors also play a significant role in your ability to access life insurance coverage or lack thereof. Insurance companies consider specific risk factors. For example, if you’re a smoker, you work a job known to increase mortality rates, or you take part in hobbies that can impact your lifespan negatively, you may have to pay higher insurance premiums. On the other hand, those with too many risk factors combined will likely have a hard time finding coverage altogether.
Coverage Amount
It’s also important to consider the coverage amount you’re looking for and to carefully consider the level of protection you need. For example, if you don’t have anyone who depends on you financially and you only want to cover funeral and burial expenses, a $20,000 term life insurance policy may be fitting. On the other hand, if you have financial dependents, you may want to consider a much higher coverage amount.
Medical Underwriting Process
In most cases, term life insurance policies come with a medical underwriting process. This process is designed to ensure that you are in the health condition you said you were in on your application and that writing your policy doesn’t pose additional risk to the insurance company. So, what’s involved in the medical underwriting process?
Health Questionnaire
The medical underwriting process typically starts with a health questionnaire. These questions are designed to learn more about your health status. For example, you may be asked about any surgical history, medicines you take, or pre-existing conditions. Keep in mind that it’s important to provide detailed and accurate information here. After all, the next step is usually a medical exam to validate your health questionnaire responses and more.
Medical Exam
Next is the medical exam. This exam typically involves a blood draw, blood pressure check, and other basic checks you would expect if an entity wanted to know just how healthy you truly are. The medical exam may also include a verbal questionnaire in which the physician asks you more detailed questions about your medical history. As is the case with the written medical questionnaire, it’s important to be honest here. After all, any blatantly dishonest answers could show your underwriters that you’re trying to hide something, which could lead to you being disqualified for coverage.
Health History Review: Evaluation of Pre-existing Conditions
Once you’ve made it through the medical questionnaire and exam, a medical underwriter will review your health history and evaluate any pre-existing conditions you might have. They’ll need to assess the risk that providing you with a policy may pose to the insurance company.
Underwriting Decision
Once the medical underwriting process is complete, your underwriters will make a decision. In most cases, that decision is either to approve or decline your coverage. However, there may be a third option. If the underwriter believes the original quote you received doesn’t address the risk associated with writing the policy, they may change the rate on the quote. If that happens, you’ll need to agree to that rate before coverage begins.
Financial Considerations
The decision to buy term life insurance is largely a financial decision. So, there are going to be financial considerations to think about. Some of the most important include.
Premium Payments: Determining Affordability
There are several factors that play a role in your premium payments. Your age, gender, health history, coverage amount, and policy term are some of the most important. While you can’t do anything about your age, gender, or health history, you can adjust the affordability of your policy by adjusting your coverage amount. For example, if a $1 million policy is too expensive, consider opting for a lower coverage amount. Keep in mind that longer terms are typically more expensive. So, if you need to bring your price down, you may want to consider shortening your term.
Payment Frequency
When you purchase term life insurance, you’ll decide if you want to pay monthly, quarterly, or annually. And that decision isn’t always simply a matter of convenience. Insurance companies often offer discounts for payments that cover a longer timeframe. For example, you may pay a lower premium if you pay annually than your annual cost would be if you opted for a quarterly or monthly premium payment.
Policy Term: Choosing the Duration of Coverage
As mentioned above, your policy term plays a role in the price of your policy, but there’s more to think about when it comes to your term than pricing. Short-term life insurance, with options ranging from 5 year term life insurance to 15 year term life insurance, is best for those who need coverage for a short period of time, maybe until their children are adults.
However, it may be best to opt for long-term coverage, with options like 25 year term life insurance and 40-year term life insurance. Keep in mind that premiums typically rise with age, so your cost of renewal will likely be higher than your current term life premiums. Moreover, there are also options like term 80 life insurance, also known as term to 80 life insurance. This type of insurance will offer a death benefit if you die before you’re 80 years old.
Documentation and Information Required
When you purchase life insurance, you’ll likely need to provide detailed documentation and information. That documentation and information usually includes:
Identification
You’ll usually need to provide proof of your identity. Doing so is often as simple as producing your state-issued ID card, but there may be other requirements. For example, you may need to show your Social Security card, or birth certificate, or even prove your address by producing multiple pieces of mail with your name and address in the recipient space.
Financial Information
Insurance is a product that involves a pool of customers. For it to work, most of the customers in each pool must pay their premiums. As such, insurance companies may want to verify your income and financial stability before writing your policy. Therefore, they may ask for financial records like your W2s, bank statements, or pay stubs.
Health Records
Although you’ll likely fill out a health questionnaire and take part in a medical exam before you’re approved for coverage, you may also need to provide your health records. This may include the results of any recent tests, documentation of pre-existing conditions, recent blood work, documentation surrounding surgeries, and more. Be sure to provide complete records if you’re asked to produce them.
Beneficiary Designation
Finally, term life insurance is centered around a death benefit. If you die during your term, someone will be paid a benefit. So, the insurance company you purchase the policy from must know who to pay in the event of your death. There are two types of beneficiaries:
- Primary beneficiaries: This is the primary recipient or recipients of your death benefit.
- Contingent beneficiaries: This is the beneficiary or beneficiaries who will receive your death benefit in the event of your death if the primary beneficiaries are unavailable or otherwise unable to collect your death benefit.
Additional Requirements
There are some other requirements to consider as you purchase a term life insurance policy. Those include:
Policy Riders
Policy riders allow you to customize your coverage — at an additional cost, of course. For example, the “return-of-premium” rider can be added to your policy if you’d like to receive 100% of your premiums back if you outlive your life insurance policy’s term. There are other riders to consider as well. If you’re not sure how to navigate riders, talk to your life insurance agent about your options and how they work.
Exclusions and Limitations
Keep in mind that all term life insurance policies come with terms and conditions. Violating those terms and conditions could result in a loss of coverage. Moreover, there are typically conditions surrounding how long you have to maintain your policy before a death benefit will kick in and whether or not a policy will pay beneficiaries as a result of an event like suicide.
Policy Conversion
As its name suggests, term life insurance only covers you through the term of the policy. For example, if you have a 10-year term life insurance policy, you’ll receive 10 years of coverage. However, some policies can be converted to permanent life insurance when you near the end of the policy’s term. If that conversion possibility is important to you, discuss it with your life insurance agent before you purchase your policy.
Tips for a Smooth Application Process
Although there’s quite a bit to consider when purchasing term life insurance, the application process doesn’t have to be difficult. Simply follow the tips below to ensure that the process goes smoothly.
Prepare Accurate Information
When you apply for term life insurance, you’ll likely need specific documents. So, it’s wise to gather them in advance. For example, gather the following:
- Identification Documents: This includes your state-issued ID card, Social Security card, birth certificate, and a couple of pieces of mail.
- Medical History: Ask your primary doctor for a printout of your medical history. Also, consider reaching out to any surgeons or other specialists who may provide further details surrounding your pre-existing conditions.
- Financial Documents: Finally, gather your last two pay stubs and three month’s worth of bank statements. You may also need your most recent W2.
Disclose Health Information Truthfully
When you’re going through the medical questionnaire, it’s important to disclose all of your health information truthfully. There are a couple of reasons for this:
- If your medical exam uncovers a lie about a health question, you could be rejected for the coverage you’re attempting to purchase.
- If you lie about your health history and die of an ailment associated with that lie, your beneficiaries may not receive your death benefit.
So, make sure that you’re as accurate and honest as possible as you answer any health-related questions.
Shop Around
Keep in mind that life insurance companies may set their own pricing and requirements for coverage. As such, these are some of the ways life insurance companies compete with each other.
So, before you purchase a term life insurance policy, you may want to get several term life insurance estimates. Before comparing those estimates, make sure they are apples-to-apples comparisons. For example, comparing one policy with a $1 million coverage cap to another with a $500,000 coverage cap wouldn’t be a fair comparison. Instead, it’s important to make sure that all variables are the same. That includes coverage caps, riders, term lengths, and any other aspects of the policies you compare.
Seek Professional Guidance
Finally, shopping for insurance on your own may seem appealing, but it’s not typically a wise idea. The truth is that the insurance industry is complex, and navigating it can be difficult. That’s especially the case for someone who isn’t trained in the nuances of life insurance complexities.
Instead of shopping for coverage alone, consider seeking professional guidance. There are insurance brokers and agents who will be more than happy to help you find the policy that’s right for you.
Moreover, while your insurance agent or broker may get paid from the sale of insurance, they also typically must act as legal fiduciaries. That means these professionals must act in your best interest regardless of the paycheck they receive for the insurance products they provide.
Final Thoughts
Term life insurance is a valuable product. It can help ensure that those you love and who financially depend on you can make it financially if you die and your income is no longer present. Moreover, it can help make sure that those who love you don’t have to pay your funeral and burial costs while they’re grieving.
On the other hand, life insurance is a complex product with several nuances that can make a meaningful difference in your coverage. If you’re in the market for a term life insurance policy, consider reaching out to a life insurance agent at Fidelity Life today at 1-866-630-0255.
