When you buy term life insurance, your insurance company uses "units" of insurance. These units are dollar amounts that the insurance company sells insurance in. For example, an insurer may sell life insurance in blocks of $1,000. When you purchase term life insurance, you should understand how these units of insurance affect you and any benefits you receive from this method of purchasing insurance.
Significance
A unit of term life insurance makes it easy for the insurance company to sell insurance in round numbers. Instead of selling $1,259 worth of insurance, the company can sell $2,000 or $5,000 of insurance at a time. Your life insurance company only offers you the option of buying term life insurance in these units such as $1,000, $2,000, $5,000 at a time.
Benefit
By buying life insurance in "units" you may receive a discount on your life insurance. Units of insurance may also be accompanied by banding. Banding is a practice where life insurance companies sell large units of insurance for a discount compared to what the insurance would ordinarily cost with non-banded rates. For example, the insurance company may offer you a price break if you buy $250,000 worth of insurance, rather than buying $200,000 of insurance.
Effects
The effect of units and banding may significantly lower your premiums when compared to buying un-banded insurance and insurance outside of the predefined units of insurance. In some cases, the insurance could be less expensive than a lower dollar amount. For example, a $250,000 policy may be cheaper than a $200,000 policy because of the discounts offered by the insurer for buying at the preset unit or banded rate.
Consideration
When considering buying insurance from a life insurance company, always ask what their units of insurance are. Also, ask about any bands in death benefit coverage. If your life insurance company offers banded rates and units of coverage then you may want to know about those in advance and take advantage of them.
