Frequently Asked Questions & Answers About Life Insurance
1. Do I Need Life Insurance? Not necessarily. If you have no children or dependents whom you support financially, you might not need a life insurance policy after all. Life insurance aims to provide a solution for those who seek income replacement, mortgage protection, estate planning, leaving a legacy, or burial expenses. However, if someone you love is dependent on you financially, you need life insurance. 2. What Is Mortgage Insurance? Mortgage insurance is a type of life insurance which pays your mortgage balance in the event of your death. The beneficiary is the lending institution and not your immediate family. Additionally, the face value will diminish over time in direct proportion to your mortgage balance. 3. How Does The Insurance Company Determine My Premium? Premium rates are typically based on factors such as age, gender, height, weight, health status (including whether or not you use tobacco), and if you participate in high-risk activities or occupations. 4. What Is A Permanent Policy? Permanent policies are typically the best option if you are looking for life-long protection, or an option to accumulate a tax-deferred cash value. A portion of the premium of a permanent policy is used to build up a cash value. The cash value can be used in several different ways, including allowing you to take out a loan against the cash value, or paying your premium after your policy is fully paid up. 5. Once I Buy The Policy, Will I Even Need To Change My Insurance Coverage? If you already have a policy, it will usually have a lower premium rate than a new policy you would buy. If you’re buying a permanent policy, the cash value will also be smaller for several years. Keeping all these factors in mind, it might be worth considering a new policy if you have any significant changes in your life circumstances, such as if you: · Are recently married or divorced · Have or adopt a child (or became a grandparent) · Have children or grandchildren who are about to enter college · Provide care or financial help to a child or elderly parent · Receive an inheritance · Retire (or your spouse retires) · Start a business · Change or lose your job or salary 6. What Does It Mean When A Policy Is “Fully Paid Up?” Fully paid up” means that you have paid enough premiums to cover the cost of the policy for the rest of your life, and the company will use the cash value to pay your premiums until you die. 7. What Happens If I Miss A Premium Payment? Most policies have a 31-day grace period wherein you can pay the premium with no penalty or interest. If you have a term policy and do not make the payment within this grace period, the insurance company will usually terminate the policy. If you have a permanent policy, you can authorize the insurance company to draw your premium from your policy’s cash value. 8. What Is A Contestability Period? Most policies have a contestability period of two years after you buy the policy. During this time, if the insurance company finds that they issued the policy under misrepresentation or withholding of information by you, they can declare your policy void. 9. What Is The “Return Of Premium” Feature? Some term policies have a return of a premium feature that allows for a refund of all or some of the premiums you paid through the term of the insurance if no death benefit was paid. The premiums for policies with this feature tend to be higher, and you must be careful not to miss any payments throughout the term in order to take advantage of this feature. 10. What Is A Term Policy? Term insurance plans cover you for a term of one or more years, and it pays a death benefit only if you die in that term. However, even if you don’t die within the term, you have not wasted your money any more than when you buy car insurance but never have an accident. You have bought yourself peace of mind that your beneficiaries will receive the death benefit if you should die within the term. Term policies typically offer the lowest monthly premium and are usually the best option if you have a limited budget or a temporary need. You can typically renew term policies for one or more terms even if your health has changed, however each time you do so; the premium may be higher. There are four kinds of term policies: 1. In level term policies, the death benefit amount will remain the same for the entire term. 2. Convertible term policies allow you to convert the policy into a permanent policy, typically without a medical exam or further underwriting. Generally, this does increase your premium payment 11. How Much Life Insurance Do I Need? To determine how much life insurance you need, it’s best to look at your surviving family’s immediate, ongoing, and future financial obligations, and compare that with your financial resources. Below are examples of each type of need: · Immediate: funeral costs, medical bills, taxes. · Ongoing: mortgage payments, utilities, food. · Future: college tuition, retirement funds. Financial resources can include your partner’s income, savings, income-producing assets, and investments. Considering all these obligations and resources, the difference between the two is how much life insurance you need. 12. Am I Still Eligible For Coverage If I Have A Serious Health Condition? Most plans do require medical testing and charge premiums based on the level of risk they assign to you based on the testing. However, even if you are not in top health or have a serious health condition, there may be some options available with guaranteed issue plans, although this comes at the cost of a higher monthly premium and a lower death benefit. It also completely up to the carrier’s underwriter, they may not want to insure the risk. It never hurts to ask before signing up for a policy. 13. What Is A Rated Life Insurance Policy? Rated life insurance is method insurance carriers use to offer coverage for individuals who aren’t in the best of health but the insurance company will accept the risk on the individual. This type of policy is more expensive and usually once rated the rating stays for the duration of the policy. 14. Do I Need Life Insurance On My Child? This depends on who you ask and what they are attempting to sell you. A child’s policy can provide a saving vehicle, the ability to buy more coverage in the future without proving insurability. It will be the cheapest life insurance you can ever buy as insurance is solely based on age and health. 15. What Is the Underwriting Process? The underwriting process is a method through which carriers assess your risk based on the medical exam (if needed), answers on the application, and databases search results (Medical Information Bureau, prescription database report, and Motor Vehicle report) to conclude whether or not to approve, deny, or rate up a life insurance policy. 16. Should I Buy No-Questions-Asked Life Insurance? “No-questions-asked life insurance”, also known as guaranteed issue life insurance, is a policy which ensures your acceptance regardless of your current or past health challenges. There are three caveats to these plans. These policies are overpriced, and usually have a maximum death benefit. You must be between the ages of 40 and 85 to qualify for guaranteed issue plan, so if you are younger than 40 years old, you will not be able to purchase these policies. You should never, ever buy guaranteed issue coverage unless you’ve exhausted all other options and you can afford premiums. 17. How Long Does It Take To Get My Policy? That depends on the insurance company and the type of coverage that you applied for. Generally speaking, the underwriting process for a traditional, fully underwritten process can take anywhere from two to eight weeks. A no-exam or final expense policy can be issued from a few minutes after submission to about two weeks. The delivery time is about a week after the policy’s approval. 18. Do I Need to Take An Exam? If you apply for a traditional policy, then yes, you will have to undertake the exam. However, most companies now offer up to one million dollars of life insurance coverage without the need to go through an exam. Additionally, some policies are approved on a simplified issue basis, and do not require you to take the exam. 19. Why Do I Need To Take An Exam? Since, insurers are on the hook for millions if you die soon after getting the policy. They increase their odds by conducting an exam and consequently decide how risky you are to insure. Additionally, they make sure not to insure the unqualified individuals who may have a terminal illness or otherwise are likely to die soon. 20. What Do The Insurance Companies Test For? A third-party nurse will go over the questions you answered on the application and record your pulse, blood pressure levels, height and weight, and also take a blood sample. Sometimes, depending on your age and the company, a urine sample and EKG will also be required. 21. What Is A Death Benefit? Life insurance death benefit is the amount of money the insurance company pays the designated beneficiaries upon the insured’s death, provided the policy was in force at the time of the incident. 22. What Is A Beneficiary? A life insurance beneficiary is an individual, entity, trustee, or estate named by the policy owner to collect the death benefit proceeds upon the insured’s death. There are two types of beneficiaries: 1. Primary beneficiary: The first one in line to collect the death benefit upon the insured’s death. 2. Contingent beneficiary: Also known as a secondary beneficiary, is the second one in line to collect the benefit if the primary beneficiary is deceased. 23. What Is Final Expense? Final expense refers to specific protection individuals purchase to cover charges and affairs that are associated with your such as burial, funeral service, or final medical bills. 24. What Are Life Insurance Riders? Life insurance riders are add-on provisions to enhance or customize your current coverage to fit your needs. Some riders come at no additional cost and are baked in the coverage. It’s worth noting that riders are purchased with the policy and can’t be added later. Here are a few common purchased riders: · Waiver of premium · Disability income · Child’s term life · Accidental death benefit ride 25. Where Can I Get Life Insurance Quotes? You will always find online insurance quote sites if you have any questions about life insurance all sites have advisors that can assist you. Since you, the client, may not know what plan is best for you based on your health history, you may find that you’ve applied to the wrong policy with the wrong company. Moreover, the quotes you see online aren’t the rates you will actually qualify for. Over the years, many individuals applying for a guaranteed issue life insurance when they could get a traditional coverage without the waiting period. It is understood that you do not want to be contacted by phone, or deal with annoying salespeople. But the right Advisor is the key to obtaining the best policy for your needs most online quoting service understand that need and provide the help you need at no cost to you or your policy. 26. What If I Die Without Life Insurance? Life insurance’s primary purpose is to prevent financial hardship for your loved ones. Whether it’s burial expenses or mortgage balance you worry about, a proper life insurance policy can help your beneficiaries avoid this misfortune. The person who signs the contract with the funeral home is legally obligated to pay for it. Hence, buying a policy isn’t really for you. It’s to prevent the extra headaches someone you love has to go through when they need to deal with all you left behind. 27. Why Do I Need To Disclose My Income On The Application? Your current and past health aren’t the only parameters the carrier uses to evaluate your application for life insurance. Moreover, since life insurance is meant to protect financial devastation to your heirs, the insurance company needs to make sure you are not over-insuring yourself and that the payment is within your means. If you make 20K per year and want to purchase a 20-million-dollar insurance where the premium is so high, you can’t afford it, this will trigger a red flag, and you most likely will not be approved for coverage. Lastly, any amount you choose to buy, you must justify it through income or assets that you are trying to protect. 28. Can I Buy Life Insurance On Anyone I Choose? Sure, provided there is an insurable interest a relationship and with the insured’s consent. Insurable interest is a reason to buy life insurance on someone else because you could undergo a financial disaster if they die. A relationship can be: 1. Husbands, wives, or children 2. A business owner can buy life insurance on his key employees 3. Creditors are allowed to take a policy on their borrowers 29. Can I Get A Better Price If I Buy Directly From The Insurer? No. Life insurance prices are fixed by law and are subject to the insurance carrier and the government of insurance approval. If that were the case, brokers, agents, and the insurance companies couldn’t compete ethically in the marketplace, and consumers would be even more baffled with life insurance. As a client, you may choose to work with a broker because he can shop all companies and offer you the best one for your situation. Unlike investing you do not pay a fee to the broker. 30. Can I Buy More Than One Policy? Sure, you can, provided there is a financial need for it. You may want to supplement your current policy from work or add another term life insurance because you just had a new addition to the family. The insurance company is more interested in the total death benefit amount you currently hold rather than in how many policies you have. 31. What Are Health Classifications? Health Classification, is a method the underwriter uses to determine the risk you pose to the insurance carrier. A fundamental concept is the higher the risk, the more you will pay in premiums; the less of a risk, the less you will spend. Additionally, since it’s impossible to determine one person’s mortality with absolute accuracy, the carriers group individuals with similar risk and calculate their rates. 32. How Does The Insurer Know I Died? Your designated beneficiary will let the carrier know with a phone call or an email. They will also need to supply a death certificate (not a copy) along with the deceased’s policy number. In some cases, carriers only require a name, birth date, and home address to find the policy on file. 33. How Much Life Insurance Can I Buy? The amount of coverage you can buy must reflect your economic value. There are a few ways to justify the requested face amount by calculating your assets and liabilities. However, most companies follow this simple formula: the younger an applicant is, the more coverage he needs because the children are still young, the mortgage balance is still outstanding, so passing away in these critical times could devastate the beneficiaries. 34. What To Do If My Application Was Declined? The best way to remedy this is first getting the facts right. What was the reason you were denied coverage in the first place (seek a letter of declination if you don’t know the reason)? An Advisor will disclose those facts to see if he can match you with a different insurer. The worst thing you can do is to apply to eight different companies to see who can issue you a policy because the more you get declined, the easier it is for other companies to follow suit and not approve your policy. 35. Does Life Insurance Cover Suicide? The suicide provision states that, if you die within two years after buying the policy as a result of suicide, the carrier will contest your claim and will not pay your beneficiaries. After two years, an insurer can’t challenge the death claim and must pay the benefit. 36. Do I Need Life Insurance If I Have It Through My Employer? You probably do. Most group coverages aren’t portable, which means if you lose or quit your job, you also let go of your insurance coverage. Most importantly, group coverage doesn’t offer sufficient protection and typically offers two your yearly income, which by all accounts, isn’t enough. (The recommended amount is 10 times yearly income.) 37. Do I Need To Buy Life Insurance For My Parents? That depends. You should ask yourself these questions first. · What is the policy’s purpose? Burial, asset protection, or estate planning? · Are you taking care of them? · Will you suffer financial loss if they die? · Do they have assets you can use to pay for burial expenses? If you only need burial insurance for them and you have the money to cover it, or they have enough assets to pay for it, skip the policy and call it a day. You don’t need it. 38. What Is Universal Life Insurance? Universal life insurance, also called UL, is a permanent type of coverage that provides guaranteed death benefit payment to heirs, cash value accumulation on a tax-deferred basis, and the ultimate advantage of flexibility. A portion of your premium payment goes to cover the cost of insurance (COI), and the remainder is parked in a designated account to earn interest. 39. What Is Key Person Life Insurance? Key person life insurance is protection a business owner can purchase on key employees to cover premature death. A key employee is a valuable asset to a company because he/she holds a special talent or skill that is hard to replace. 40. How Much Does Life Insurance Cost? This is probably the most commonly asked question. It depends, it is based on your age, gender, tobacco use, family medical history, and current health. There is a need to know the requested face amount and policy type just as a starting point. So to answer the question it will depend on you and the limiting factors which create the value used to price the life insurance. 41. Why Did I Get Conflicting Life Insurance Rates? Most rates posted on line are what are called, the preferred rates. The underwriter of each carrier and not the Advisor determines your final costs. A Advisor’s job is to estimate the rates as accurately as possible based on your unique circumstances so that you will not be surprised when the underwriter comes back with the final prices. 42. Why Do Insurers Ask Me About My Family History? I Thought I Was Applying, Not Them! As mentioned before, life insurance underwriters specialize in assessing mortality risks. Unfortunately, some diseases, such as cancer, cardiovascular, diabetes, or stroke found in parents can increase the likelihood of you developing the same conditions. Keep in mind that most companies are only interested in death before the age of 60 of an immediate family member, and you will not be denied coverage if this is the only risk you pose. Instead, you will be charged a higher rate. 43. I Filed For Bankruptcy, Why Did The Life Insurer Deny My Application? Having a bankruptcy on your record poses another risk to the insurance company. You may be the healthiest person on the planet and still be denied coverage. If you just had a bankruptcy, the insurer believes that you will not pay for the coverage you just acquired. So, the cost of doing business isn’t worth it at this point. However, two years after the bankruptcy is discharged, you can reapply without any issue. 44. How Can I Save Money When Buying Life Insurance? Buying a term life or a combination of term and permanent insurance may help you pay a lower premium. Buying a policy early in life is also a good way to ensure a lower premium. The older you are, the higher the premiums, and the more risk you have of developing a health condition that could increase your premium even more or disqualify you from getting coverage at all.