10 Things You Don’t Know About Term Insurance, Essay Example

Problem Statement

Insurance industry is one of the most competitive now. A lot of companies want to save you from unexpected expenditures. The most competitive segment of insurance is life insurance. There are plenty of companies, which provide, so the amount of offers is unlimited too.

Specialists in this industry can easily choose the company, which can provide with high-quality insurance services, requiring reasonable money for that. Specialists in this field are aware of frauds, low-quality services and too high pricing. Without having a proper experience, it is quite difficult to find a company, which everyone can trust with such important issue as life insurance.

How this specialist can do it without any complication, while there are lots of offers now and it is very difficult even to compare all these offers? The answer is quite simple – they have already conducted a research and have chosen the most important pieces of information. Their experience allows them to do the analysis without great time expenditures.

This paper is aimed at granting you with basics of their knowledge, which can save you time and make you a kind of professional, who is able to find out the right answer on the question: “What company shall I choose to buy a life insurance policy?” through granting you a knowledge how to choose the optimal price/quality offer for you.

Choosing the Right Option

In order to make a reasonable decision you have to conduct a research yourself. The main points you have to assume making this research are presented in this paper. Such research does not require substantial time expenditures, but can save your money and give an ability to choose the best insurance service

The first step is to define of the life insurance type you need and find out the main features of the particular type. The policy needed is term life insurance policy – a life insurance policy is policy that pays out to the beneficiary if the holder of the policy dies. After a particular term (if the policy holder is alive) he can keep on paying premiums.  This is the cheapest type of insurance and is considered as pure type insurance – it accumulates no cash value. According to this definition, advice on choosing the best term insurance plan is based.

Initial Analysis

It is quite difficult to compare tens of companies; the research will take too much time. In order to decrease these time expenditures, a less thorough research shall be performed first. The companies, which cannot satisfy you, have to be sifted out. Before making a research – comparing of different term insurance plans, consumer has to choose several companies, which provide with the best price/quality index of service. Many sites can provide you with a free quote. Just enter your specifications (age, gender, information on health risk level, face amount and types of payments and the site gives you the list of companies along with their prices. When you’ll get the list of companies, you have to sift out the bigger part of all companies. The list of companies, which are left, is a subject to the more detailed analysis.

Here are the main hints on compiling the group of companies, for which a more thorough analysis will be performed:

1. Do not seek for the lowest price.
   The main rule here is “you get nothing for nothing”. Be aware of the lowest price and special offers that are too low than the average level (the average price level you can see on the sites, that can give a list of insurance quotes. You might have problems using insurance companies, which can provide you with term insurance service, having too low price. Beneficiary can either get no money, or the policy holder can pay additional fees, that are accurately hidden. Both cases are unwanted, so you don’t have to choose services, which cost too low.
2. High prices.
   You have to take into consideration the fact that the highest price can result in the highest level of quality. So, you don’t have to sift out companies, which provide customers with term insurance policies at high price. While choosing the final list of companies, you shall not exclude these companies from the list only because of their prices.
3. Check the financial strength.
   Every reliable insurance company use rating agency services (Moody’s, Fitch, Standard&Poor’s). These ratings show the ability of company to repay debts. Your insurance amount is debt of the insurance company. Thus, the more stable the insurance company is, the more confident you can be. If the ratings are too low, it’s unsafe to buy insurance services – beneficiaries can just get no money. So, the next step is to look through ratings of insurance companies and choose the list of companies with the highest ratings. World Wide Web can help you while searching for ratings from independent rating companies.
4. Choose the leader
   Try to put only best companies in the short list. Insurance industry fluctuates, as the whole economy does – the most stable insurance company will guarantee you repayments. Companies, which are influenced seriously by economic fluctuations, are not stable and you are not guaranteed to receive your money. Picking the companies with the best performance can avoid you from facing problems and wasting your money.
5. This hint corresponds with the previous one. The company shall not only be the best in the field, but also be stable. Stable means have only growth of its business. Leader, which suffers substantial downturns as well as sudden upgrowth is not reliable – your term insurance policy could mature when the company suffers from crisis. In this case you face a risk of getting nothing.
6. Avoid illustration trap.
   A producer of any product or a provider of any service shall provide all information on the product or service. Inability to get all the information causes suspects – why should the company hide the information on its product or services? Companies, which do not give information concerning insurance policies, shall be sifted out. The company must provide you with all information concerning its services. Companies, which promise some free additional services and “2 instead of 1”, are suspicious too. The price of a service cannot be 0 – so, you either get no additional services or will be charged in addition to the policy price. Only companies, providing all information concerning their activities and services can be trusted.
7. Company’s effectiveness.
   To identify, whether the company is able to pay money when the policy matures, you can also make a simple analysis of company’s financial performance. Find annual reports of the company and look at the information concerning income. If the company is able to generate income, its annual report will contain information that the company had income in previous years. It will be useful to find, how much company has paid out to its customers in previous years. If this amount is growing along with the income – company gets more and more clients and becomes more stable. If the amount paid out grows slower than income – the company tries to charge its clients more than before.

In-Depth Company Analysis

When the short list of companies is complete, a more thorough analysis can be performed. Services are now relieved in details. It is better to compile a table with information on services of all companies to be able to compare them easier.

The table should include Premiums (annual or/and monthly), Total Premium, Sale of policy, Ability of Conversion. You can also add more feature if you need, but the basic and the most important are stated above.

In this case a 60-year old, non-smoker, male with standard health risk was chosen. The insurance amount is $200,000:

All companies enables customer to convert term life insurance policy. Besides that, the first company offers a credit toward the first-year cost of your new permanent coverage and no paramedic exam while converting the policy. There is an option to convert a policy without a paramedic using services of the second company.

The last company is considerably smaller that the others. This fact results in a smaller premium – 28% lower those other companies in the example.

However, none of the companies has an opportunity to sell the policy. There is no information on this issue on the company’s site. But his option can be extremely useful for people, who don’t need coverage no more. If a company enables a customer to sell the policy, it has more advantages, only in the case you can you expect that the need in coverage can decrease in the future. For elderly people this feature shall not be taken into consideration as the health level decreases from year to year and there will be no need in policy sale.

The first company has the price of a term insurance policy that is equal to the policy price of the second company. All service features seem to be the same, but the first company enables customers to receive a credit toward the first-year cost of your new permanent coverage. Look at such advantages, when this price of several companies is almost equal. This can help you while making the right decision.

You also must give a look at ability to choose a waiver of premium rider. This feature enables you to receive money if you become totally or partially disabled. For the first company this sum accounts for up to 90% of the dead premium (maximum benefit payable equals $250,000), for the third company it covers premiums you pay.

When the table is completed and you know about specifications of all companies providing term insurance policies, it is time to make the write decision. On this stage it is reasonable to choose the right option taking the price and all features into consideration.

If you have completed research according to our advice, you will choose the best option on the insurance market.

Implementation of Research Procedures

While doing such research you can feel lack of information about services. You can also face problems while deciding what company shall be sifted out and what shall be put in the short list or chosen (if you are on the last stage). Here are some hints, which you have to consider on every page of your small research:

1. Look for information on company’s website. Nowadays every respectable and reliable company will place information about itself and description of its services on the website. If there are no needed information, contact a company’s agent. If your are unable to find information on a website or through consultation it is better not to put this company in the short list. Such company cannot provide you with high-quality services.
2. While consulting you, an agent cannot guarantee the premium cost. When calculating the cost of premium, agents use the information you’ve given him/her. Thus, you have to give him all correct information concerning your health – only in this case agents can give you the most accurate calculation of premium cost. Without giving all information you cannot receive an accurate price quote.
3. Ask the manager to tell you about all features of the service and additional options you can purchase. Tell him what your objective is – he will give you all necessary information. Make your self sure that you’ve got information on conversion options.
4. Take into consideration the fact that you’ll have to take a paramedic exam – in other case you will be charged higher premiums. If the your health level is quite low, it can be cheaper than having a medical examination and than be charged for a policy regarding your health level.
5. Do not be afraid to ask question. The aim of their work is to give you exact information on their services. And you can surely benefit from the consultation with an agent.