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Disadvantages of Term Insurance
Considerations When Purchasing Term Insurance
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Cost.
While an important consideration, it is not the only one. Compare the premiums
over the intended life of the policy. One way to do this is to merely add all
the premiums. Another more scientific way is to calculate the value today
(present value) of the premium payments. Whichever policy has the lowest
present value is the cheapest.
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Are
premiums guaranteed or merely anticipated? Guaranteed premiums are the way to go. Guarantee periods typically
extend for as long as 20 years or more.
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Is
the policy renewable? Look for a policy
that is renewable for as long as you might need it, regardless of your health. This
is known as a guaranteed renewability
feature.
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Is
the policy convertible? This gives the
policyholder the right to convert the term policy to a permanent policy within
a specified number of years. Can you convert to permanent coverage without
having to undergo a physical exam? If
you do decide at some point that you need permanent insurance, explore your
options at that time. Don't automatically convert your existing term policy
without evaluating other insurance policies.
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Don't convert to permanent insurance unless there
are good reasons to do so such as you had children late in life and they are
still dependent on your income, you have a disabled child who will need to be
cared for after your death or you spouse is much younger than you and is
dependent on your income.
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What
is the insurance company's financial condition? Because life insurance is a long-term commitment, you want to be
sure your life insurance company will be in business in the event of your
death.
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Periodically, life insurance companies do fail. So
buy insurance only from a company with a high quality rating: AAA from Standard & Poor's (212-438-2000)
or Duff & Phelps (312-368-3198); Aaa from Moody's Investors Service
(212-553-0377; no charge) and A++ from A.M. Best (908-439-2220 or their web
site at www.ambest.com).
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You can also review information at your local
library or ask an agent to supply ratings reports. Remember to periodically
review your insurer's rating since financial condition can change over time.
Endnotes:
(1) Emmett and Therese Vaughan, Fundamentals of Risk and Insurance, copyright 1999, p. 295.
(2) Kathy M. Kristof, 'Making Life Choices', Los Angeles Times, September 23, 1997.
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