Term life insurance is a product that is sprinkled with gold nuggets that make it so much more than it appears on the surface. The great news is that the nuggets are part of the policy and are not added on at an extra cost.
One of those nuggets that I often take for granted that everyone is aware of is the fact that the death benefit, that $100,000 or $1,000,000, that you are insured for will be delivered to your beneficiaries income tax free. Unlike just about any other kind of cash windfall that a family experiences, the government keeps their hands off of it.
Even better, the company isn’t going to hang on to any unused premium. Say you are paying $1200 a year for your $250,000 term insurance policy and you pass away a month after paying that annual premium. The company is going to pay the death benefit and refund $1100, the unused part of the premium. In addition to that they are going to pay interest on the death benefit from the date you file the claim until they settle it. The interest thing is generally not that big a deal because most claims are settled in 7-14 days, but if the claim falls in the 2 year contestability period it may take a few months to settle and the interest can add up.
Another gem in term insurance is the conversion option. In a nutshell this option or privilege allows you to convert all or part of your policy to permanent coverage without evidence of insurability. Let’s say you take out a policy in your 40’s and are in perfect health, approved at preferred plus rates. Then in your 50’s you are diagnosed with and survive colon cancer. This would make the cost of getting a new term policy completely prohibitive, if you could get approved at all.
With the conversion option you are still a preferred plus risk if you choose to convert to a permanent policy. While the cost of the insurance, once converted, is going to be higher than your term insurance was, it is the magic bullet that will keep you insured when you truly can’t qualify for new insurance.
One last piece of gold in your policy is the accelerated death benefit rider. This allows you, if you are terminally ill, to take usually up to half of the death benefit prior to your death for whatever needs you might have. It could be to pay the mortgage because you aren’t able to work or pay medical bills. It could be to do something special with your spouse or family that you wouldn’t otherwise be able to afford. Upon your death the balance of the policy is delivered to your beneficiary.
Bottom line. Life insurance is all about lifting burdens from families that have suffered a major loss. The more gold nuggets you can pour out with that blessing, the better.