insurance

More flexible customized term life insurance

Term life insurance that allows you to protect loved ones as they depend on you during key portions of your life -- such as while you're making house payments -- has typically been offered in yearly increments divisible by five. You might buy a policy to cover you for 10, 15 or 30 years. Why not 11 years, or 23? For the companies, "It's probably better to keep things simple," explains James Hunt, an insurance expert with the nonprofit Consumer Federation of America.

But what if you're superstitious about numbers ending in five or zero? Or -- more likely -- what if you want a little flexibility? Some insurers are breaking out of the mold with "customized" term life insurance that the companies say can offer you a policy in the perfect size, along with potential cost savings.

13- or 28-year term life, if you want

One example is Allstate's TrueTerm life insurance. You can choose any coverage period between 10 and 30 years. You also can "layer" protection, allowing you to expand or decrease your coverage as needed, such as opting for $500,000 during the first 10 years of a policy and then reducing it to $250,000 for the last 10, points out Phil Russo, an actuary with Allstate Financial.

"Life insurance needs come in all shapes and sizes. We wanted to offer flexibility and take into consideration a family's budget. Why pay for more than you need? You can save hundreds or thousands of dollars over the life of your policy," Russo says.

American General life insurance has a similar product called Select-a-Term. The terms can be 10 years or any number from 15 through 30 years, and the company says the coverage can be "laddered" for different needs over different periods to maximize the savings.

For example, American General says a man who's 39 might want: $250,000 of coverage to pay off his mortgage, which has another 27 years to go; $500,000 in life insurance for the 23 years until he turns 62, to protect his family's income needs; and an additional $250,000 worth of insurance for the 16 years until his youngest child turns 21. The company says that with traditional term life, he might have purchased one 30-year, $1 million policy to cover all three concerns, with premiums totaling more than $35,000. With customization, he can buy separate 16-, 23- and 27-year policies in the desired dollar amounts, at a total cost of around $23,000.

Higher premiums but long-term savings

A recent survey from InsuranceQuotes.com, a Bankrate company, found that roughly 4 out of 10 American adults don't have life insurance. Among those who don't, 45 percent said they think it costs too much. "Customization can reduce costs," notes Holly Kylen, a retirement coach with ING Financial Partners in Lititz, Pa.

Customized term life insurance policies can have higher premiums, cautions Marc Specht, a financial adviser with Kuttin-Metis Wealth Management in New York, but you have to do the math because you might still come out ahead.

"Would you pay more for a 13-year policy than a 15-year policy? Calculate what you'll pay over the life of the policy. If it costs more for a 'custom' policy but over the 13 years you pay less than a traditional 15-year policy with a lower annual cost, then it may be worth it," Specht says. "Conversely, your cash flow may not allow for the higher annual premium, despite the long-term savings."

Also realize that policies with more flexible term lengths are not available from every insurance carrier, and that can limit your ability to shop around, he says.

The products are somewhat new, and there hasn't been enough demand for customized term life insurance to become more mainstream, Russo explains. "Agents round up or round down to the nearest increment. Although this may not be entirely aligned with the client's needs, it's perceived as 'close enough,'" he adds.

But the demand could increase and bring more choices for term life customers. "These days, nobody wants to buy something 'off the shelf'; they want something customized to their personal needs," says Specht.

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