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August 28, 2015 at 06:46 AM
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.
