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Life Insurance Basic FAQ's

1.What is life insurance?

Life insurance is an insurance policy you can buy that will pay a certain amount of money to a person that you choose (the beneficiary)in the event of your death.

2.Why should I buy life insurance?

Life insurance is a good way to make sure your family members are provided for after you die. Life insurance benefits can also be used to pay estate taxes, funeral expenses, and any debts the insured has.

3.Will my group insurance from work, social security or mutual fund assets cover my life insurance needs?

Coverage from the types of group insurance plans offered by many employers is usually not enough to cover the average person's life insurance needs. 

4.How can I buy life insurance?

If you already have a trusted insurance representative, that person should be happy to answer any questions you might have about life insurance. You can also find out about the different types of life insurance available to you through online quotes provided by sites like this one. It is always a good idea to get quotes from several different insurance companies to get the best rate, and comparing quotes online is the fastest way to do this.

5.Will I be required to buy a certain amount of life insurance?

You are not required to purchase a certain amount of life insurance, though a good rule of thumb is to multiply your annual income by 20, add all debts and expenses and purchase this amount of insurance. That way, you can be assured of providing enough for your dependents.

6.What can I do if I have trouble getting coverage?

Life insurance companies place restrictions on who is eligible for coverage and the amount of coverage a person may be eligible for. These restrictions are based on the potential risk to the insurance company. You may be denied coverage based on age, lifestyle, health conditions or other factors, depending on the insurance company's policies. If you have been denied life insurance, you may be eligible for a group plan through your employer or any organizations you belong to. 

7.What is a “needs analysis”?

A needs analysis is a procedure used by insurance brokers and financial planners to look at your overall assets (life insurance, pensions, Social Security benefits, etc.) and compares those assets to debts that would need to be covered in the event of your death. A needs analysis is a very useful way to make sure that you are carrying the right amount of insurance for your individual situation.

8.How can I determine how much life insurance I need?

A good way to determine how much life insurance you need is to sit down with an insurance agent or financial planner and complete a needs analysis. You can also determine the amount of life insurance you should buy by multiplying your annual salary by 10 or 20, and adding any debts or other financial obligations to that amount.

9.How do life insurance companies determine cost?

The cost of a life insurance policy is determined by several factors. Mortality costs refer to the costs to the insurance company of paying claims, and this cost is affected by the insured's health, age, lifestyle and gender. Operating costs and investment returns for the insurance company also directly affect the price of an insurance policy.

10.Will I need a physical exam before I can buy life insurance?

Maybe. Requirements for physical exams vary from company to company, and are also dependent on the type of plan that you choose. Even if you are not required to have a physical exam, it is important to answer all health-related questions on the insurance application fully and honestly. Omitting information or making false claims about your health status could result in denial of a claim or the cancellation of your life insurance policy.

11.Should I go with a company that advertises no physical exam?

Some companies advertise life insurance with the promise that no physical exam is required, but there is usually a catch. The amount of coverage available is usually limited to small sums, and the rates are usually higher. As with other life insurance policies, there is a “contestable period” of a year or two in which the insurance company can cancel or modify the policy if the company discovers a medical condition or other factor that was not disclosed in the initial application. These plans are best used to supplement existing life insurance coverage as the rates are higher and the benefits lower than many other types of policies.

12.What kind of personal information will I have to provide to get life insurance?

Most life insurance companies will ask for a basic medical history covering you, your parents and your siblings to help classify you in the proper risk category. You may also be asked to provide basic financial information in some cases, depending on the amount and type of coverage you want to purchase.

13.Who has access to the medical information on my life insurance application?

The personal medical information on your life insurance application should only be used by the underwriters to determine which rate classification to assign you to. The information can also be shared with the Medical Information Bureau (MIB), but only with your written authorization. The MIB is an insurance industry organization which collects data to use in application verification procedures.

14.What is a MIB report, and how can I get a copy of mine?

An MIB report is available to insurance companies by the Medical Information Bureau, and it may contain certain health information disclosed by you on other life insurance applications. This report is available to insurance companies only if you provide authorization to share the data. Please see the MIB website at for more information on whether or not you have a report on file, and how to obtain a copy.

15.Should I get life insurance when I retire?

Generally, the need for life insurance declines with age. Many of the reasons people purchase life insurance, such as an income source for dependents, are not an issue as a person reaches retirement age. Exceptions to this include individuals with large estates or who need life insurance coverage for business purposes. Some people choose to purchase a small amount when they retire just to cover their final expenses.

16.Should I buy life insurance for other family members?

Typically, the members of the family who provide income should be covered by a life insurance policy. This allows the family to maintain financial security in the event that an income source is lost due to the death of the insured. Many parents choose to also purchase term life insurance policies for their children as well, and many of these policies have cash value that the children can draw upon when they reach a certain age.

17.Will having a life insurance policy affect my medicaid eligibility?

A life insurance policy is classified as an asset by the federal guidelines governing Medicaid eligibility, and could affect your eligibility to receive these services. As Medicaid is a program that is administered on the state level, the exact eligibility requirements concerning life insurance policies could vary greatly from state to state.

18.Should I hire a lawyer or financial planner to help me with my life insurance?

The services of an attorney are usually not necessary, but if you are going to need to make changes to you will or help establishing a trust fund with your life insurance an attorney can help. Financial planners can be useful for helping you determine how much life insurance you need, but there are also websites and computer programs available that can help you with this.

19.How can I get life insurance quotes online?

Many insurance companies are providing free online quotes, and there are a multitude of websites that provide comparison quotes from several different life insurance companies at once. Getting your quotes online can save you time and money, but these quotes are initial estimates only and there are still some companies that will direct you to speak to an insurance agent for the most accurate quote.

20.Should I cancel my existing life insurance policy in favor of a lower-cost policy advertised by another company?

Term life insurance rates have been dropping in recent years, and you are free to purchase a new policy if your life insurance needs can be met by a company with lower rates. However, there are a couple of things to be aware of if you are considering changing your life insurance. You need to make sure that your new policy will have the right amount of coverage and you need to be honest about any changes in your health status that could affect your rates.

21.How can I get the best deal on a life insurance policy?

Age is one of the biggest factors used by insurance companies to determine premium rates, so you will get lower rates if you purchase life insurance while you are relatively young and healthy. You should also get quotes from several different agents or companies, as prices can vary widely from company to company. If you smoke, quitting now can also significantly lower your rates. If you are suffering from certain health conditions, you may be able to lower your premium amounts if you can prove to the insurance company that you are working to become healthier.

22.Can I get a refund if I change my mind about my life insurance policy?

In most states, insurance companies are required to give you a certain period of time – typically between 10 and 20 days – to review your policy and decide if it is right for you. You can return your life insurance policy to the company within that period of time and receive a refund of premiums paid. Once this period has passed, you can cancel your policy but will usually not receive a refund.

23.Can the insurance company cancel my policy?

Generally, a life insurance company cannot refuse to pay a claim. There are some exceptions to this, such as if someone disappears under questionable circumstances or if fraud is suspected. See your policy information for more details.

24.Will an insurance company void my life insurance policy if I lie or make a mistake on my application?

If you make a mistake or omit information that may have caused the insurance company to deny you coverage, the insurance company must discover the mistake within the specified “contestable period” to be able to cancel your policy. Once the contestable period has passed, the company cannot cancel your policy. If the error on the application would not have led to a complete denial of coverage by the insurance company, the company has the option of adjusting the amount of coverage to match the correct information or charging you the difference of the higher premiums you might have been paying.

25.Can an insurance company void my life insurance policy if I move to another state?

No, but the insurance company is still bound by the laws of the state in which the policy was issued.

26.What is a “cost disclosure” form?

This form is used to provide you with a standardized statement of the cost of life insurance. The form allows you to compare the cost of different insurance plans.

27.I believe a family member had a policy that was “paid up” but I cannot find the policy. What should I do?

You can start by contacting the insurance company that you believe may have issued the policy. If you provide as much information as you can about the insured individual and the type of policy that person might have had, the company can usually search its records for a match.

28.How will my life insurance policy be affected if I get a divorce or separate from my partner?

Your policy will not automatically be affected if your living situation changes, but you may have to make some changes yourself. You may need to change your beneficiary information or adjust the amount of your coverage, depending on your individual situation.

29.How does my age, sex and health affect my life insurance?

These are the three most important factors that determine the cost of life insurance. Premium amounts increase as you get older because your chance of dying also increases. Females typically pay lower premiums than males because they generally live longer. Poor health and a risky lifestyle also increases your rates – and can even make you uninsurable if you have certain health conditions.

30.Could smoking affect my ability to buy a life insurance policy?

Yes. If you smoke, you could pay a substantially higher premium for life insurance than a non-smoker of the same age and health status. If you also have a smoking-related health issue, the insurance company could deny you coverage all together.

31.I am very healthy, but I participate in risky hobbies like auto racing and skydiving. Will this affect my ability to purchase life insurance?

The insurance company may ask for additional information about these activities, such as how often you engage in them. You could experience higher premiums or have difficulty getting coverage depending on the risks associated with the activity. Some insurance companies have a specialized underwriting staff trained to review these types of activities, and it may be best to purchase your life insurance from one of these companies.

32.I sometimes travel to other countries where the health services and sanitation are not up to American standards. Will this affect my life insurance?

Frequent travel abroad could affect your life insurance rates, and the insurance company will probably ask you for additional information on your future plans before deciding whether or not to issue a policy.

33.Will I lose my life insurance if I miss a premium payment?

Maybe. Insurance companies offer what is called a grace period on your premium payments. The length of time in which you have to make a payment after it is due before your life insurance policy lapses can vary, but is often between 30 and 60 days. If you have not made your payment by the end of the grace period, the insurance company has the right to cancel your policy at its discretion. 

34.What is an automatic premium loan clause?

This is a clause available for life insurance policies that accrue cash value. If you miss a premium payment, the insurance company can automatically take a loan against the cash value of your policy to cover the amount of the missed payment. This can prevent a policy lapse as long as the policy has adequate cash value to cover the payments.

35.What happens if I become unemployed or disabled and cannot pay my premium?

Many life insurance policies contain provisions that could waive premium payments for a specified period of time if you lose your job or become disabled. You should contact your insurance company directly for more information on their specific policies.

36.Is there anything I can do if my policy lapses?

You can usually contact your insurance company to make arrangements to pay the premiums up to date. The company may ask you to certify that you are still in good health or ask you for a physical examination before reinstating your policy.

Group Life Insurance FAQ's:

1.What are the most common types of group life insurance?

Most group life insurance plans are offered through employers and are 1-year term policies. Some employers offer universal life coverage as an option for their employees, and there are also split dollar plans which can offer individual life insurance policies for business-related purposes. Your employer can give you more information on the benefits provided by their group coverage.

2.How does group life insurance differ from an individual policy?

Life insurance under a group plan typically skips the underwriting process. You are automatically covered through your employer, but you will lose this coverage if you are laid off or switch jobs. The employer is the policyholder in a group life plan, and the employer determines the terms of the coverage. If you have group life insurance coverage and you lose your job, many insurance companies offer you the option of converting your coverage to an individual policy.

3.Will my employer's group life insurance policy still cover me if I am laid off?

That depends on the company you work for and whether the layoff is temporary or permanent. If your company offers a salary continuation program, or if the layoff is expected to be short, your benefits will usually continue. If there is little chance that you will be rehired soon your benefits will probably be canceled, but you should have the option of converting to an individual life insurance policy within 30 days.

4.Do I still need individual life insurance if I have coverage under a group plan?

Probably. Most people find that the amount of coverage offered by their employer's group life plan is not sufficient to cover all of their life insurance needs. In this case, it might be a good idea to purchase additional life insurance coverage to make sure that you are adequately insured.

Term Life Insurance FAQ's

1.What is a term life insurance policy?

Term life insurance is a type of policy that covers the insured individual for a specific period of time (10 years, 25 years, etc.). This type of insurance pays benefits if the insured dies during within the term of the policy. This type of life insurance is usually the lease expensive, and accrues no cash value.

2.What are the most common policy variations for term life insurance?

The coverage amounts for term life insurance are either “level” – meaning that they stay the same for the term of the policy, or “declining” – meaning that the coverage amount decreases over time according to a specified schedule. Some term policies are renewable for a certain number of terms, usually at a higher premium, and some policies also offer the option of converting to a cash value policy at the end of the term.

Cash Value Life Insurance FAQ's

1.What is a cash value life insurance policy?

Cash value life insurance is a type of policy that not only pays a death benefit, but also accumulates savings over time that can be used to pay future premiums or borrowed against if the need arises.

2.How does cash value accrue on my life insurance policy?

The money available to you before your death on a cash value life insurance policy builds up over time. Typically a certain percentage of your premium payments is applied toward the cash value of the policy according to a schedule set by the insurance company.

3.What should I consider if I am thinking of purchasing a cash value policy?

If you plan on carrying at least some life insurance throughout your life, a cash value policy may be the answer for you. Many people opt to have both cash value and term life insurance policies so they have basic continuing coverage and the lower cost if term insurance to meet high financial obligations, such as a mortgage. If you only plan on carrying a policy for a certain number of years, you should consider a term life insurance policy, as cash value policies tend to be more expensive in the beginning.

Other Life Insurance Policy FAQ's

1.What is whole life insurance?

Whole life insurance is a type of cash value insurance that continues coverage until age 90 or 100.

2.What are the most common types of whole life insurance policies?

Aside from the regular whole life policy that continues coverage to age 90 or 100, there are also plans available that become paid up after a set number of years or at a certain age. Variations on the whole life concept are also available. These plans include policies that allow more than one individual to be covered (joint life, family plans) and policies that have different premium payment structures (graded premium life, single payment life).

3.What is universal life insurance?

This is a newer type of cash value insurance that allows greater flexibility that the traditional whole life policies.

4.What other types of life insurance policies are there?

The other most common types of life insurance are insurance variable life and credit life. Insurance variable life does not have a set benefit amount, and the policy values are determined by the performance of stock market investments. Credit life is available through lending institutions and is designed to pay off your debt in the event of your death. This type of insurance can be very expensive, and most consumers are advised to complete a total needs analysis to determine what life insurance policy would be best for their situation.

5.What is an “Endowment” policy?

An endowment policy is a modified whole life policy. The policy has higher premiums because more of the premium goes toward the cash value of the policy. The policy is designed to terminate and pay out either after a set number of years or at a certain age.

6.How do I know if I am choosing the right type of insurance policy for my needs?

The best way to determine your life insurance needs is to go over your individual situation with a financial planner. Most informed consumers today choose to buy a lower-cost term life insurance policy and add the money saved to their investments.

7.How can I avoid paying commission fees when I buy life insurance?

Some companies do not have agents and sell directly to the consumer by phone, mail or Internet. You should get quotes from several companies to make sure you are getting the best deal. Websites like this one also allow you to get several quotes at once and even purchase your insurance online.

8.An insurance agent suggested that I buy a cash value life insurance policy to use as a type of forced savings plan. Is this a good idea?

This may be a good way to accumulate savings if you are the type of person that has trouble saving money, but it takes a long time to build up a significant amount of savings. Most people are better served by savings and investment accounts when it comes to building a nest egg.

9.I have a mortgage on my home. How can I make sure my family will be able to keep the house when I die?

The most popular way to cover a mortgage is through a decreasing term life insurance policy. This type of policy can be specifically tailored to match the declining balance of your mortgage. You may also be able to purchase mortgage insurance through your lender, though this may be more expensive.

10.Can I cancel my existing life insurance policy and purchase a new one?

If you have a term policy that is several years old, you may want to think about purchasing a new policy if you can get one that meets your needs at a lower rate. If you are thinking about replacing a cash value policy, you should consider the decision carefully. Insurance companies are required by law to provide you with a detailed comparison form that shows you such a replacement would be to your advantage. Remember, cash value on a policy builds up slowly, and you would be starting over with a new policy.

Life Insurance Beneficiary FAQ's

1.Who can take out a life insurance policy on me?

You can purchase a policy for yourself and parents can also purchase coverage for young children. If anyone else wants to take a life insurance policy out on you they must have your written agreement and consent.

2.Does my beneficiary have to be related to me?

No. You can choose anyone you want to be your beneficiary or beneficiaries.

3.Should I name a beneficiary on my life insurance policy or have the policy payable to my estate and distributed through my will?

That depends on your situation. If you want the money to go directly to a certain person or persons, then they should be named as beneficiaries on the policy. If you have a will or other papers prepared that designate the distribution of the proceeds, then you will probably want to have the policy payable to your estate.

4.How can I change a beneficiary?

Once a life insurance policy is in force, the owner of the policy can change the beneficiary to whoever the owner chooses, unless the beneficiary has been designated as irrevocable. The form for changing the beneficiary on a life insurance policy is available from the insurance company.

5.How many beneficiaries can I have?

Most policies are set up with a beneficiary and a contingent beneficiary. The proceeds go to the beneficiary upon the death of the insured. If the beneficiary has already died, the benefits would be payable to the contingent beneficiary. It is possible to create more complicated arrangements where the beneficiary and/or contingent beneficiary are actually more than one person. Your insurance company can give you more information on this.

6.Can I gift a life insurance policy?

Yes. Your life insurance company can help you make an “absolute assignment” of the policy. The person you assign the policy to then becomes the owner of the policy. Depending on where you live, you may be responsible for paying gift taxes on the assignment.

7.What are the possible effects on a beneficiary's Social Security income?

Life insurance proceeds have no effect on a beneficiary's Social Security payments.

8.What are the possible effects on a beneficiary's income tax liability?

The proceeds of a life insurance claim are not subject to federal income tax if they are paid to the beneficiary of the policy.

9.Are there any tax benefits associated with life insurance?

Yes. Death benefits paid to the beneficiary are not considered taxable income. Also, there is no tax on the increase in value of cash value life insurance policies.

10.Can I have my life insurance benefits paid to my grandchild?

Yes. If the grandchild is a minor, you might want to consider having the proceeds payable to someone that you trust will use the money for the child's best interests. You can also set up a trust fund for the policy proceeds through an attorney

11.What is a contingent beneficiary?

A contingent beneficiary is the second beneficiary listed on a life insurance policy. This person will only receive the proceeds of the life insurance policy if the first beneficiary has already died.

12.What are revocable beneficiaries?

This means that the owner of the life insurance policy can change the beneficiaries at his or her discretion.

13.What is an irrevocable beneficiary?

This means that the owner of the life insurance policy cannot change the beneficiary of the policy. This type of beneficiary designation is most commonly used in business insurance to assure that the proceeds of the policy go to the designated person for the intended purpose.

14.I recently lost a family member whom I believe had a life insurance policy, but I cannot find the policy and I don't know what company it was with – what can I do?

he first thing you should do is go through the deceased's papers to check for canceled checks, receipts or anything else that could help you identify the insurance company. You can also write to some of the larger insurance companies with the deceased's name and address to ask if the person had a policy with the company. If the policy existed and was in force, there is a chance the money could have been turned over to the state the deceased lived in as unclaimed funds. Contact the state's department of revenue for more information on where to inquire.

15.Is it a good idea to list a funeral director as the beneficiary of my life insurance policy to simplify paying my funeral expenses?

Not necessarily. A better idea would be to designate a trusted individual as the beneficiary. When you designate the funeral home as your beneficiary, there is no third party involved to control the funeral home expenses.

16.My partner and I are not married. Can I purchase life insurance on my partner or list my partner as the beneficiary on my life insurance policy?

Insurance companies usually require that the beneficiary of a life insurance policy have an” insurable interest” in the insured individual. This includes a spouse, relative or business partner. If you are designating someone as your beneficiary that does not have a clear insurable interest, the insurance company may ask you to offer an explanation of your reasons for choosing the beneficiary.

Life Insurance Claims FAQ's

1.What are the most common settlement options?

  Lump-sum Payment: Under this option, the death benefit is paid in a single payment.

  Interest Income: Under this option, the insurance company retains the death benefit and pays the beneficiary a certain amount of interest on a monthly basis. The beneficiary retains the right to withdraw the proceeds and stop the interest payments at any time by notifying the insurance company.

  Fixed Amount: Under this option, the payments are divided into equal monthly installments and paid to the beneficiary until the entire amount of proceeds and interest have been paid out.

  Life Income: Under this option, the beneficiary receives monthly payments of the proceeds for as long as he or she lives. The payment amount is determined by the payee's age at the time the payment starts and the payee's life expectancy. The beneficiary cannot outlive the income because the insurance company guarantees payment for the lifetime of the payee.

2.What are contested benefits?

Sometimes a creditor or other person will try to contest the payment of the death benefit. This effort often fails because insurance companies keep careful records of the named beneficiaries on a life insurance policy, and insurance proceeds to a beneficiary cannot usually be taken for payment of debt.

3.If the insurer delays the payment of benefits, do those benefits accrue interest?

The insurance company is entitled to take a reasonable amount of time for investigating and processing the claim, but the company should pay a reasonable amount of interest on the proceeds during this time. Barring any unusual complications, benefits are typically paid within a few weeks.

4.What are the advantages of allowing the insurance company hold my family member's death benefits in a fund that I can write checks from?

This can be a useful way for the beneficiary to take an adequate amount of time to decide exactly what to do with the proceeds and still have access to funds on an as-needed basis.

5.Will the insurance company still pay benefits if the insured individual commits suicide?

Almost all life insurance policies have a “suicide clause” in which suicide is not covered during the first year or two that the policy is in force. After this time has passed, suicide is covered just like any other cause of death.

6.What is a viatical settlement?

A viatical settlement is when a terminally-ill individual sells a life insurance policy to a third-party investment company for a percentage of the face value of the policy. The investment company then collects the benefits when the insured individual dies.

7.Who is eligible for a viatical settlement?

A person needs to have a life insurance policy in force and be terminally ill to be eligible for a viatical settlement.

8.How is the sales price for my life insurance policy determined?

The sales price is determined by the investment firm's actuarial department. They estimate the value of the policy at the time of the insured's death by using medical data to estimate the life expectancy of the individual. The insured will receive less than the face value of the life insurance policy, but the money is available to the individual while he or she is still living.

9.How much could I be paid in a viatical settlement?

This varies depending on the circumstances of the insured individual, but is usually somewhere between 50% and 80% of the face value of the life insurance policy.

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