In the insurance industry, risk-free opportunities are rare.
So, too, with term life insurance: There is a common misperception that buying term life insurance is a risk-free proposition, but that is not the case, and any belief to the contrary can have negative consequences for individuals, couples and families.
Does this mean people should avoid purchasing term life insurance altogether? On the contrary, term life insurance is an ideal way to maximize the death benefit of your policy (on a per dollar basis); but again, that reward is not without its share of risks. Here’s why.
1. You may not be able to buy as much coverage as you age.
Take, for instance, the attempt to buy more coverage as you age. That amount may be less than what you had purchased when you were younger.
And, since every life insurance company has financial underwriting requirements, what you are eligible to get (as opposed to what you want to receive) may be exponentially different than what another applicant in another age bracket can buy. For example: One insurance company will allow a person who is 20-29 years old to purchase a death benefit that is 25 times greater than that individual’s income. Compare that figure with an applicant who is 55-59 years old because that person can only buy (from the same insurer described above) no more than 8 or 10 times his or her income.
These numbers may vary among carriers, but they follow a similar trajectory toward the same destination; which is to say, the older you are, and the more likely (through a combination of personal health factors and statistics) you are to develop a chronic medical condition, the more narrow your options will be regarding the amount of term life insurance you can buy.
A survey of these odds involving Type 1 Diabetes proves this point. According to the American Diabetes Association, if you are a man with this ailment, the odds of your child developing diabetes are 1 in 17. Also, when one twin has Type 2 Diabetes, the other’s risk may be as high as 3 in 4.
Insurance companies are very aware of these risks.
2. You may not be able to qualify for that preferred rate anymore.
Bear in mind, too, that your rate class may change. Your Preferred Rate, which an underwriter assigned to you years ago when you were young (or younger) and healthier, may no longer qualify for that same low-cost rate class. Know that every rate class above Preferred Plus will increase the cost by roughly 25 percent.
3. You may not be able to buy coverage for as long as you want.
There are further age-related limitations, which prevent you from purchasing coverage for as long as you may prefer. In fact, every term life insurance company has its own criteria, with respect to age, where you may not be able to get all the coverage you want for as long as you want.
For a 60-something applicant, who bought term life insurance 30 years ago (and still needs coverage), that person would likely only qualify to get coverage for another 20 years.
The details — and there are many — determine the outcome of buying term life insurance. Those variables are too important to dismiss, and too consequential to ignore; they warrant close inspection and analysis, aided by a life insurance professional who can explain, with clarity and concision, how this process works. As insurance professionals, we can expedite this process through explanation and education, never forgetting our professional duty — and our personal responsibility — to help those who seek our guidance.