TERM 101

An overview of financial protection with term insurance.

Life can be uncertain. We hope this never happens but conditions such as a sudden heart attack, cancer etc can appear from nowhere.

The reason why you are reading this article is most likely because you are a person who loves your family and does everything possible within your power to protect them from financial emergencies.

Every family has varying financial needs and this is ever changing as one age. Mortgage, children’s education, other loan payments, retirements or even daily living get affected if one of the earning members is absent.  Even if you have no liabilities to take care,  at least a final expense bill need to be paid off which usually is in the range of 30,000$ to 50000 $

Term insurance is the cheapest way to protect your family from financial liabilities in the event of something happening to you. In the USA as per current IRS rules, the death benefits are generally tax free as well.

So, the first step is to determine how much coverage is needed. There are simple formulae like D.I.M.E which stands for Debts, Income replacement, Mortgage and Educational expense

D, Write your total current debts such as credit card loans = Eg. 50,000USD

I, Income replacement for 3-10 years assuming a 100K$ annual Income = 100×5= 500,000$

M, Mortgage outstanding = Ex.650,000$

E, Education for kids’ college assuming 2 kids= 2×200000$= 400000$

Then deduct any current insurance you have from the above.

Add above to get an idea of the financial risk exposure and we get about 1.5 to 2 M$ USD in the above example. Then deduct any current insurance you have from the above.

Once you know the needed financial coverage, the next step is to find a suitable carrier who can insure you. In the United States there are over hundreds of insurance companies offering term insurance and  there is no one fit for all. Some carriers offer coverage only to citizens or permanent residents while there are a handful who also accept other visa classes such as H1.

It is recommended to choose a carrier who has a good AM Best rating, offering competitive premium rates, convertibility and acceptance of the visa class you are in. Another important factor to consider is the availability of various riders such as living benefits. Living benefits if available will make the insured eligible to draw a substantial percentage of the death benefit amount from critical, chronicle, and terminal disease conditions.

Most people look at the monthly premium rate while choosing the carrier and therefore the insurance marketplace is very competitive and carriers do have their sweet spots between various products and solutions.

Your insurance premium is generally calculated by the carrier based on your age, health conditions, gender, your lifestyle etc. There are various health classes which will be assigned by the underwriting based on the health check up or health records accessed by the carrier. Whichever carrier you approach, the premium will be lowest when you are young, healthy and have a reasonable lifestyle. Since the premium is usually paid for a long period like 20 or 30 years it makes great sense to lock your rates when these parameters are in your favour.

Your premium will be higher as you age or your health conditions change negatively for example a higher BP, cholesterol or other out of range numbers. Buy the maximum coverage for the maximum term you can afford. Remember you can always cancel it once you feel it is no longer needed.

There is also insurance coverage specifically meant for mortgage protection which also has a return of premium option if there is no claim. However, the premium costs tend to be higher than a pure term insurance.

How to get a term  insurance?

As this is straightforward coverage, it is easy to understand and you could  check the features from across several carriers yourself online directly. Even if you purchase online, the carrier will auto assign your case to someone in their network. Nowadays instant purchase is also possible but this is usually limited to a limited coverage and for healthy candidates and the rates could be slightly higher.

A more time saving method is to engage an agent whom you like and trust and with some basic details, the agent can shop around with multiple carriers on your behalf and submit  the best options for you to choose. As agents are doing  on a daily basis they can help you apply correctly and look for backdating possibilities and even coordinate the medical checkups.

George Jacob, is an experienced insurance agent and financial consultant working with multiple carriers. He understands the family finances very well as applied to young and old alike and can advise you on the best options to meet your unique needs. George is not a sales person and his role is of an advisory and consultative in nature and there is no obligation for his free consultations.