Shopping for term life insurance isn’t only about getting the best price. To ensure your loved ones have a strong financial safety net in the event of your death, you must weigh several key considerations.
Term life insurance is typically the most affordable type. It provides a payout for your loved ones if you die during a set period, or term. A term life insurance calculator can help you decide how much coverage you’ll need and for how long. Then there are a few additional questions you should consider as you compare policies.
Many term life policies are convertible, that is, they can be switched to another type of coverage — usually a permanent life insurance policy. Your needs for life insurance may very well change in the next 20 to 30 years, so it pays to buy a convertible term life insurance policy. You should also find out your policy options if you do decide to convert.
Life insurance policies have grace periods to ensure that you don’t lose coverage if you make a late payment. Generally, you have 30 days to catch up before your policy lapses. If you happen to die during the grace period, your beneficiaries will still receive a payout; after that, they won’t. Even if you do exceed your grace period, some policies will reinstate you if you make up the payments with interest within a few months.
Ask about the grace period of any policy you’re considering and what happens after the period has passed.3. How do you want the life insurance payout divided among beneficiaries?
If you want to name multiple beneficiaries for your policy, you generally have two ways divide the payout: per capita and per stirpes.
Per capita means per person. If you choose it, your payout will be distributed according to the percentages you designate for each beneficiary. Per stirpes means per branch of the family. In that case, if one of your beneficiaries died before you, that portion will go to his or her surviving heirs.Choose the per stirpes option if you want to make sure your payout goes to a particular branch of the family, no matter who predeceases you. Otherwise, choose per capita.
Life insurance riders are options that change the benefits or terms of your policy. For example, you might be able to buy a rider that covers your premium if you become disabled, or that pays out if you suffer a critical illness. Other riders ensure that you can add more coverage without undergoing an additional medical exam, or even return your premiums if you don’t die within the coverage term.
Riders can increase the cost of your policy, sometimes significantly, and some aren’t available through all insurers or on all policies. Before you buy, weigh the benefits of a rider against the long-term cost.5. Are the policy’s premiums and death benefit level?
Most term life policies offer level premiums that don’t increase during the policy term and death benefits that don’t decrease. However, some don’t. If predictable costs are important to you, don’t assume your policy’s premiums and benefits are level — ask.
Life insurance is a long-term expense. Ask the right questions before you sign on the dotted line to ensure that you understand what you’re paying for.Elizabeth Renter is a staff writer at NerdWallet, a personal finance website. . Twitter: @ElizabethRenter.