If you have been reading these emails, you now know the difference between term insurance and whole life insurance, and why each product exists. You also know that they are not the same product with a different rate structure, but rather different products designed to solve different problems.
Today’s message will focus on term insurance. Increasingly over the years, but especially since the advent of the internet, term insurance has come to be viewed as a commodity. What does that mean? Your Dictionary defines a commodity this way: A product that is difficult or impossible to differentiate from similar products from competitors (http://business.yourdictionary.com/commodity).
In that sense, price is the only differentiating factor. Many purport that the lowest priced term policy is the best term policy. While price may be an important factor, it shouldn’t be the only factor considered. Although most term policies may be “commodity like”, there are some subtle differences which should be considered.
The first is the issuing company. The financial strength of the company is not as important when buying term insurance as it is when buying whole life, but that doesn’t mean it’s irrelevant. If the premiums are close, it makes sense to go with the higher rated company, even if it costs a little bit more.
Another important characteristic to consider is the conversion feature. The conversion feature is a contractual provision found in most term policies that can be invaluable in certain circumstances; it is merely convenient the rest of the time.
Most term policies will allow you to “convert” the policy to a permanent policy without providing evidence of insurability. This means that should your health and/or your insurance objectives change, you can change (convert) the term plan to a permanent plan, which you otherwise may not have been able to do without the conversion feature.
Some term policies are convertible until a certain age (usually 65), but the recent trend is to limit convertibility to a number of years, such as 10 or 20. Often a policy will be convertible for the duration of the level premium, but in some instances a 20 year term policy is only convertible for the first 10 years. Also, some companies limit which of their policies you may convert to.
In conclusion, price (premium) may be an important factor in determining which term policy to buy, but it should never be the only factor considered. The company and/or the conversion feature could ultimately wind up being the most important factor.