Having a job with benefits means health, vision, dental, life and protection. All the perks we’re after when we seek that ’real’ job. Health benefits are straight forward, but life insurance can get confusing.
Many employees opt for a low cost term life insurance policy that provides a six figure death benefit in the event of unexpected death. Term insurance is attractive because of the relative low cost in relation to universal life policies.
If you work in financial services or sell term life insurance this is a question you field often:
“What do you mean there’s no refund? What happened to all that money I paid in?”
There are simple facts about term life insurance many otherwise intelligent people don’t understand. Here are six pointers that will help educate you prior to that meeting with your plan administrator:
Don’t expect a refund
Term life policies function almost identically to liability coverage on your automobile. No car accident, no claim. No death, no life insurance settlement. Simple as that.
Outliving your term life policy should make you happy, instead of feeling ripped off. Your premiums did not go to waste, they kept you insured for a while, at a low cost.
You wouldn’t believe the amount of people who don’t understand they won’t get their money back after their term policy expires. I’ve settled this confusion numerous times as an insurance agent.
Appreciate the simplicity of term life insurance
The source of the basic confusion is simple. Term policies are the easiest type of life insurance to sell. A licensed agent can setup a client, explain the basics and wipe their hands of the sale, usually within the day. Term life insurance is cheap, requires no maintenance and provides a large benefit to your family should the unthinkable happen.
Agents collect a one-time commission at the point of sale and forget about you until it’s time to buy a new policy. Take it from me, it’s true.
It’s there…if you need it
Since term policies require such little attention, many policy owners don’t even realise what they have. They continue that minimal payroll deduction with the basic understanding that wifey will get paid in the event of their demise. Keep paying your premiums and you’ll be covered. If you’re after more complex insurance, that offers cash withdrawals and fluctuating death benefit, then universal life insurance is your best route.
What happens at the end of term
Besides not getting a refund, you’ll notice your monthly premium skyrocket when you come to the end of your term policy. You’re significantly more risky to insure now than you were 10 years ago. Blame the increase on underwriting tables. Most likely you won’t want to pay the elevated cost of insurance and thankfully there are better options.
What determines your premium?
Term life insurance is best suited for healthy young people. The cost is determined by health history and qualifying may require a minimally invasive health exam. Almost everyone can purchase affordable term life insurance.
Sorry, but you won’t be getting the money back you sank into the original policy. You don’t want that money anyways. Thank heavens your family never had to collect.
What to do at the end of term
When you get the dreaded increase of premium notice, you’ll first want to talk with a financial adviser. Your representative can evaluate your overall financial picture and determine suitable coverage.
The common move is to apply for a new term policy, with lesser death benefit or invest in a universal policy, which can insure you for life. We’ll go there in another article.
Image Credit: Kentucky Marine Insurance