“The only guarantees in life are death and taxes” – Benjamin Franklin
No truer words may have ever been spoken, and for this reason many of us carry insurance that we hope to never really use: Auto and home insurance, product warranties, travel protection, the list goes on and on. What if I told you there is one type of insurance guaranteed to pay out… but you might not live long enough to die with it? I also want to preface this article with another truism: Everybody dies, not everybody gets to die with life insurance.
Uberrima Fides Vita, or life insurance in Latin, is a category of insurances where the cost is essentially based on how much longer you’re expected to live.
- Can you run a 9-minute mile? You could qualify for a $1M life insurance policy for $20/month!
Does this sound like a familiar ad you’ve seen? How can we possibly get such a large life insurance policy for so cheap? We will discuss types of policies in a moment, first here are some factors that may affect your cost:
- Height and Weight
- Tobacco, Nicotine, Marijuana, and other recreational drug use
- Medication use (including Marijuana)
- Fitness level
Regarding types of life insurance there are two basic categories: Term and Permanent. I will focus on Term life in this article and Permanent in another article. Basically the main differences between Term and Permanent life insurance is:
- Term locks in your insurability until you can afford a more permanent policy
- Term can guarantee the price during the term period (often the price starts to increase considerably after this period)
- Term is also a great way to protect your assets while you are still paying them off
Locked-in insurability. This means that you may be able to convert your term policy to a permanent product without being re-rated. If you were relatively healthy at age 35 when you bought your term policy but then suffered a major heart attack at age 36 you would still be able to convert your term policy, at age 37, without your heart attack affecting your cost.
Protecting your assets. For example, if you purchase a $200,000 home with a 30-year loan you can buy a term policy that can pay off the remaining home loan if you die unexpectedly before your home loan is satisfied.
I recommend avoid decreasing face value policies. This means the amount of coverage decreases over time. With as affordable as the insurance is, coupled with the regrettable fact we are going to die, I recommend level-term.
Lastly, please remember you can convert your term policy to a permanent one during the term period. After this time you may still keep the policy, but you can’t convert it and the cost will start to increase considerably year after year. I have spoken with several families who unfortunately had to cancel their life insurance policies in their 60’s because the costs became far too exorbitant. They all wished they had converted to a permanent policy when they had the chance.
Now that you have a better understanding of Term Life I encourage you to see my next article on Permanent Life products for a more well-rounded understanding of how these differ and can work together to achieve your financial goals.