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
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
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
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 www.mib.com for more
information on whether or not you have a report on file, and how to obtain
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
17.Will having a life insurance policy affect my medicaid
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
10.Can I cancel my existing life insurance policy and purchase a new
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
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
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
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
Life insurance proceeds have no effect on a beneficiary's Social
8.What are the possible effects on a beneficiary's income tax
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
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
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
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
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
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