Term Life Insurance Buying Guide — What to look for

When it comes to shopping for a term life insurance policy, make sure the policy is guaranteed "renewable". This means that each year you can just pay your bill and the policy goes on for another year...without a mandatory health exam.

Then look for the term of the policy. There are annual policies that come up every year, or there are terms that go for five, ten, twenty and thirty years. The advantages to a longer term are that the rising cost is spread over the number of years you sign up for and you generally receive a better rate. However, consider that you are paying higher costs up front for paying less later. What if you cancel the policy after a couple of years or even for half the life of the policy. You have overpaid for the policy. Plus, if you buy shorter term insurance, you can more regularly reduce the death benefit. Remember, life insurance is to provide the replacement of your salary for your dependents once you are gone. If your dependents no longer need that salary, then you no longer need as much life insurance or indeed any at all. So why pay for a death benefit that is no longer necessary?

If you decide to go with a longer term policy, make sure that the premium is guaranteed to remain the same for the life of the policy. Also keep in mind you may for some reason want to convert to a cash value policy, so look for a "convertible" policy. It doesn't usually cost more and if you have a major health blow, you can convert without the medical exam. And speaking of health blows, life insurance premiums are primarily set according to the amount of the death benefit, your age and your health status. No better advice for lowered insurance premiums exists other than stop smoking.

Again, shop shop shop

Comparison shop for term life insurance. If you are opting for cash value insurance, comparison shopping becomes more difficult. Go to the internet and get online quotes for similar policies. Request applications and then compare again. Have your basic personal information available as you get quotes, and answer the questions honestly. Check up on the insurance company's financial health as well...you want them to be able to come up with the funds if your family should need them. Look at their performance history so you have an idea how they are doing. Then check their ratings with A.M. Best, Moody's, or Standard and Poor's. Each of these company's check insurers, albeit with differing criteria. Check a couple of them for an accurate assessment of your potential insurance company.

Figure out how much money your dependents will need by multiplying your income by the number of years left until retirement. Get a renewable term life insurance policy for as short a time as possible. Set up a savings retirement account with the money you didn't use for a cash value policy. Then research the companies on the web, comparing prices to get the best value.