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 Life Insurance & Young Adults  |   Life Insurance: Where to Begin?  | Term vs. Whole Life Insurance
   How Life Insurance Can Actually Save Your Life | Life Insurance: Do You Really Know What You Need?
    Life Insurance Benefit Payouts: A Solution for Everyone  | Employer-Provided Life Insurance: Is it Enough?
     Life Insurance Frequently Asked Questions (FAQ)

No Doctor Visit Life Insurance

It's true: you can get fast and easy term life insurance coverage without a physical exam. Many reputable insurance companies in the American market offer at least one high quality life insurance product that requires no doctor or paramedical visit, and no visit by a pushy salesman. For these products, all you have to do is answer a few simple health questions and, as long as you qualify, you can get high quality life insurance coverage in a matter of minutes. No insurance agent or salesperson will visit you at your home. No drawing of blood. It's life insurance the way it's supposed to be.

Why Choose Term Life Insurance?
Isn't A Whole or Universal Life Insurance Policy Better?

There's a reason why many insurance agents try to push potential customers into getting a whole or universal life insurance policy: because the agent will earn the biggest commissions with them! That's the simple truth. An agent may try to convince you that using a life insurance policy as a long term investment is a great idea, but, in the vast majority of cases, it's not. In fact, any agent in the United States who tries to sell a universal life insurance policy as an investment is breaking the law.

For most people, money invested in a whole or universal policy would perform better over time if it was invested in e.g. a Roth IRA.

Life Insurance: A Real World Story

The following story was donated to us by a regular visitor to the FedPrimeRate.com website:

"Back in June of 2003, Lauren, my baby girl, had just celebrated her first birthday. It was a wonderful and happy time for me, but the milestone also prompted me to think about Lauren's future. If anything happened to me, I realized that my daughter was not protected. I did not have a crazy lifestyle marked by dangerous behaviors and/or reckless risk taking. But, one can never know how one will meet one's end. I was cycling a lot back then, and there would be times when a car would zoom by me on the road, moving way too fast and passing way too close to me. I was very much aware that one unlucky encounter with a careless or drunk driver could send me to my maker, in the blink of an eye.

Lauren's mother worked a full-time job, and made a decent living, but she was not smart with her money: she had no retirement savings and no idea how she and my daughter would survive if I suddenly died.

I started to do a good deal of research into life insurance. I had always heard that for a typical, middle-class family, a term life insurance policy was the way to go, but I had my doubts. Bottom line: paying premiums for years was something I would have to do no matter what type of policy I chose, but with a term life insurance policy, coverage would end when I reached a certain age. To me, term life didn't seem like a wise choice. I imagined myself paying a premium for 30 years, then dropping dead from a heart attack the day after the policy expired.

I spoke to Rick, a sales rep' at a large, financially sound and well known insurance company. I explained to him that I was new to life insurance and needed some guidance. Rick was very knowledgeable and friendly, and even offered to drive out to my townhouse so that he could sit down with me and explain my options. I took him up on his offer.

Rick stopped by the next day with a portfolio full of documents. I had lots of questions, and he answered all of them. He then presented me with a few options:

    • A permanent or whole life insurance policy. This type of life insurance would cover me during my entire life, even if I lived to be 150 years old. I would pay a premium until I reached either 65 or 90, depending on the specific policy I chose. The policy would build a cash value over time, which means I could have access to cash in the future if I needed it for an emergency or a business opportunity. This type of policy sounded great to me, but it had one major catch: permanent policies are very expensive. I could not afford the premiums, so this option was out.

    • Rick then explained that he could sell me a term life insurance policy, which would be the most affordable option, but he said I wouldn't be happy with it, since he knew from our previous conversation that I wanted a policy that wouldn't expire.

    • Rick then explained that he could put together a custom policy for me, a hybrid policy that would offer the affordability of a term policy with the lifelong coverage of a permanent policy. He called this a compLife policy. He said that this type of policy would be a perfect for my situation. The death benefit would never go away, the policy would build a cash value over time and the premiums were reasonable.

I told Rick how much death benefit I wanted the hybrid policy to payout when I died, and he said he would have a proposal ready for me the next day.

Rick returned to my home the next day with a proposal and we went over the details. The premium of the hybrid policy he presented me was so reasonable that I decided to purchase a policy for my daughter as well. Rick explained that buying a policy for my daughter while she was a toddler would make it much easier and much more affordable for her to have a high quality life insurance policy when she became an adult.

I tried to convince the mother of my child to get a similar policy, but she refused. She said it would be pointless since she already had a policy through her employer. I looked over the details of her policy and found that her death benefit was a mere $40,000. I tried to make her understand that the benefit was way too small, but she wouldn't listen.

So I ended up with a hybrid policy for myself and a policy for my daughter. A few days after I signed on the dotted line, a lady, who I assumed was an independent paramedical hired by the insurance company, visited my home to take a blood sample (thankfully, she was good with needles!) and perform a few other tests (blood pressure, pulse, etc.) She also asked a number of health-related questions like "do you now, or have you ever in the past, smoked cigarettes?" and "do you take any medications on a regular basis?" and "how often do you exercise each week?" I didn't mind the exam, since it was essentially a medical checkup in the comfort and privacy of my own home. The health screening included an HIV test, which is something I like to do as often as possible anyway.

Fast forward to 2008. Having learned a great deal about insurance since 2003, and having performed my own crunching of the numbers, factoring in things like inflation and conservative estimates of my projected earnings, I realized that I should have just bought a term life insurance policy with a generous death benefit, and put the cash I would have saved into my business and my Roth IRA.

Since 2004, I had been making most of my money from banks, and the credit crisis which peaked during the fall of 2008 left me financially vulnerable. I cashed out of my hybrid policy in December 2008 (insurance folks call this surrendering a policy), and used the money as a buffer or cushion while I retooled and reorganized my business. It was the right move. I'll be purchasing a term policy just as soon as my income is back to 2006-2007 levels.

The mother of my child did not care that I had terminated my life insurance coverage. I don't mean to be negative, but here's what she actually said to me: "I don't care about your life insurance, because the beneficiary isn't me." My sister was the beneficiary of the policy, because I knew that if something happened to me, the hundreds of thousands of tax-free dollars the policy would payout would be much better managed by my sister. I was 100% confident that my sister would take care of my daughter if anything happened to me. The mother of my child, on the other hand, would have spent it on cars, clothes and lavish vacations. Again, I am not trying to be negative, just honest.

I think -- and I'm basing this on my years of research -- a permanent or whole life policy is a good fit for wealthy, tax-savvy individuals who want to pass a certain amount of wealth onto their kids (life insurance proceeds are not subject to any federal taxes, and are also free from taxation in most U.S. states. However, if a death benefit earns any interest, then that interest -- and only the interest -- is taxable) But for everyone else, I think a term life policy is invariably the correct choice. I now believe that it's not wise to assume that your children are going to have a need to inherit a half a million dollars or more when they are grown up and working. My daughter will inherit some money and perhaps a business or two when I am gone, and, in my opinion, that's enough. The way I see it, if you want your kids to grow up with an air of undeserved arrogance, with no understanding of hard work and the satisfaction of achieving great things on your own, then yes: give your kids lots of money when you pass on to the next.

For me, the bottom line is quite simple: life insurance is an excellent way to ensure that your kids will be OK if something happens to you before they reach an age where they can take care of themselves.

Thanks for reading my life insurance tale, and thanks for the great website."

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Paramedical Questions: Sample Life
Insurance Health Screening Questions

Insurance companies use health questions to determine whether candidates are insurable, and to determine the pricing of policies. If you decide to choose a life insurance product that requires you to answer health questions, below we have listed a number of sample paramedical questions that you may be asked:

    • If you have a regular physician, what is his or her name and business address?

    • Are you taking any prescription or nonprescription drugs, legal or illicit, for any reason? If you have, please list them and provide usage details.

    • In the past 8 to 10 years, have you used any tobacco products, or any other product that contains nicotine (cigarettes, cigars, chewing tobacco, snuff, pipe, nicotine patch, nicotine gum, etc.)? If yes, please list all products and usage frequency.

    • Have you ever tested positive for HIV, the virus that causes AIDS?

    • Have you ever been diagnosed and/or treated for an immune system disorder, disease or condition?

    • Have you lost weight in the past 6 months?

    • Do you have a family history of mental illness, depression, heart disease, kidney disease, diabetes, cancer or any other genetically inheritable disease?

    • In the past six months, has any illness or injury caused you to work less hours at your regular job than you usually work?

    • Are you currently pregnant? If yes, what is your due date?

    • In past 4 to 6 years, have you had surgery, or have you been a patient in a clinic, hospital or other medical institution?

    • Have you ever missed work or sought treatment for problems with drugs or alcohol?

    • In the past 8 to 10 years, have you used any of the following drugs recreationally: Phencyclidine (PCP), LSD, amphetamines, heroin, marijuana, mescaline (peyote), cocaine or crack cocaine?

    • In the past 8 to 10 years, have you used drugs that were legally prescribed to you or someone else recreationally?

    • In the past 8 to 10 years, have you been treated for:

      • cancer
      • allergies
      • jaundice
      • hepatitis
      • chest pain
      • high blood pressure
      • anxiety
      • dizziness
      • intestinal bleeding
      • paralysis
      • a sexually transmitted infection (STI)
      • ulcer
      • colitis
      • memory loss
      • eye disorders
      • asthma
      • diabetes
      • anemia
      • arthritis
      • chronic fatigue
      • stroke
      • diverticulitis
      • stress
      • emphysema
      • tuberculosis
      • skin disorder
      • sciatica
      • stomach pain
      • blood in stool or urine
      • gout
      • endocrine or hormonal disorder?
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Life Insurance and Young Adults:
You are not Invincible, So Be Prepared

Death. A subject few like to think about, much less discuss in great detail. The mere thought of death can make even the toughest person uneasy, leaving the subject widely unmentioned until it is too late. While the discussion is never an enjoyable one, it is one that should be broached as early as possible to avoid a financial disaster for your loved ones in the event of an untimely departure. By discussing, researching, and buying a life insurance policy, you can be sure that your family will be cared for long after you are gone. After all, no one is invincible and anything can happen in the beat of a heart.

The Invincibility Factor: How it can Cost You

Many young adults, ranging in age from 18-35, don't consider the benefits of having life insurance until it's too late. They believe that nothing will happen to them; young and strong, virtually invincible. This misconception often leads 20-somethings into a false sense of security, which, in turn, results in the possibility of financial ruin should something happen unexpectedly.

Whether single or with dependents, it's important for adults, including adults who are young and fit, to have a policy in place as early in life as possible.

Life Insurance is Less Expensive When You’re Younger

Young people are generally pretty healthy, and usually don't have to worry about the health problems that tend to take hold later in life. This allows them to obtain life insurance at a much more affordable rate than someone who is in their 40’s or 50’s. The premium rate that you start with will stay the same for the life of your policy, regardless of any health problems you may encounter after signing your policy.

Being Prepared is the Responsible Thing to Do

Part of being a responsible adult is making sure that all of your loose ends are tied up. This includes making sure that, in the event of your death, all your bills will be paid off and not left for your family and friends to take care of. Just because you are gone does not mean that your debts will go with you. By not having this crucial piece of financial security in place, you are essentially telling your family that their well being and quality of life doesn't matter that much to you.

Money Won’t Replace You, but it Will Make it Easier

Losing a loved one is never easy, and when young families lose their main breadwinner, that makes it exponentially harder. Having to deal with a multitude of debt - on top of losing their significant other - will be extremely overwhelming for everyone involved. By having life insurance you will ensure that your family will be taken care of when you've passed on. It will ensure that they will not have to worry about the cost of your burial. It will ensure that, if you have children, they can go to college and pursue their dreams. It will ensure that those you are leaving behind will be able to continue living the life they are used to. But most importantly, it will show your surviving family that you cared enough about them to make sure that they would be taken care of long after you are gone.

These are just a few of the many reasons that young adults should consider having life insurance. Life is unpredictable: you never know what tomorrow will bring. By having life insurance coverage, you and your loved ones can rest assured that if the unthinkable happens, lack of money won't be an additional burden.

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Life Insurance: Where to Begin?

We all know that having life insurance is extremely important, but with so many options out there it is hard to know where to even begin looking. From term life and whole life policies to choosing beneficiaries and benefit levels, it can be overwhelming to know what to choose. But by having the right knowledge you can make the best financial decision for you and your family, and rest a little easier knowing that if something should happen your family will be financially secure.

Life Insurance Considerations

To put it simply, life insurance is a benefit purchased to ensure that dependents are taken care of in the event of the caretaker’s untimely death. That being said, there are many options to consider before purchasing a policy.

  • Buy your life insurance as soon as you think you need it: The younger you are, the less your premiums are going to be. Generally younger adults have fewer health problems than their older counterparts, which translates to lower premiums. The older you get the harder it is to qualify for coverage, and your premiums will be much higher.

  • Make sure you buy enough coverage: Be sure that the policy that you are purchasing will cover any and all expenses that your family has, such as a mortgage, consumer debt, etc. Some financial planners suggest that you have up to 10 years of your salary in coverage, especially if you have young children. If you are worried about affording the premiums - or if you can’t afford the premiums for the amount you really need – start off with the amount that you can afford and look into purchasing more when the time is right. Shopping around is critical. The premiums vary greatly from company to company, so be sure to do your research and compare before buying.

  • Be sure to review your coverage from time to time. Getting married, having a baby, or buying a house is just a few of the life changes that should signal you to review your coverage. You should be sure that the amount of coverage your policy provides is adequate for the changes happening in your life.

  • Swear to “tell the whole truth and nothing but the truth.” A little white lie every now and again can be harmless, unless it is on your life insurance application. If you conveniently leave anything out or if you just downright lie, the life insurance company has the right to cancel your policy or worse, not pay out your benefit when disaster strikes and you need all the financial assistance you can get. Lying to get a lower premium is never a good choice; there are many different insurers out there. If you don’t get the rate you want from one company, you can always go with a different one.

  • More coverage = less premium: Doubling your coverage doesn’t mean that your premium will double. Life insurance premiums generally decrease per thousand dollars at the higher coverage amounts (around $250,000), so if you need more coverage be sure to look at your options. It may not cost as much as you think to upgrade. Also, consider paying your premiums annually rather than monthly. You may get a discount by doing so.

  • Know what type of insurance will work for your family. There are different many different types of insurance out there. Term insurance covers your family with the maximum amount of protection for the best price, but only for a set period. Whole life insurance adds a “cash value” feature that ensures you are covered for your entire life, but the premiums can be very expensive.

    Knowing the type of coverage needed will help aid you in your search for the best life insurance policy for your family. Factors such as age, health, and dependents are some of the many things that should be considered before signing on the dotted line. Shopping around can help you get the most for your dollar without sacrificing coverage.

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    Term Life Insurance versus Whole Life Insurance

    The epic battle between term life and whole life insurance has raged on since life insurance was first introduced. Critics will argue forever why one is better than the other, and try to talk you out of buying the policy they do not agree with. While the choice is one that should not be taken lightly, it definitely should be discussed. By knowing the facts you will be able to make an informed decision and do what is best for your family. You’ll need to assess your current financial situation, as well as look to the future to be sure you are buying a policy that meets your needs. Having the wrong type of life insurance coverage can spell financial disaster down the road when it is needed most.

    The Basics of Term Life Insurance

    Term life insurance is basically a death benefit only. This means that when you die your beneficiary gets the face value of your policy. If you outlive your policy, you or your beneficiaries get nothing. Term life insurance performs similar to other forms of insurance, like automobile insurance for example. It will fulfill any claims against the policy so long as the premiums have been paid and the contract has not expired. Term life insurance is a popular choice for many because it is generally much less expensive than its whole life counterpart, though it does depend on the length of the term. Many financial experts tell their clients to, “buy term and invest the difference.” They recommend this because your family will be covered in the event something would happen, and when your policy is up you should have amassed sufficient funds to be able to provide financial security for your dependents.

    Term life and whole life insurance use the same mortality tables to calculate the cost of insurance, but the premiums are significantly different. This is due, in part, to the fact that many term policies expire without a payout. With whole life, the policy must always pay out. The low payout rate of term policies is what allows them to be so inexpensive.

    The Basics of Whole Life Insurance

    Whole life insurance is a life insurance policy that generally lasts the insured’s entire life. At one time, all life insurance was term life, until people began protesting against the fact that they would pay premiums for 20 years on a policy, and then have nothing to show for in the end. Thus, whole life insurance was introduced. Whole life insurance policies have higher premiums than term life. They have “cash value” that is designed to build up against the inevitable claim, the death benefit. This benefits both the policy holder and the insurance company. The death benefit is guaranteed, and the insurance company gets 30% profit from every premium paid.

    There are many ways to pay the premiums of a whole life policy. You can pay the entire premium up front, known as a “single premium whole life policy.” You can also choose to have a “paid up” policy, where you pay for a certain amount of time and then no further payments are required. Or you can simply opt to pay your yearly premium; the choice is yours. Whole life policies generally guarantee that the cash value will increase no matter how the company is performing. The cash value of your policy is considered liquid enough to be used as investment collateral, as long as you continue to make premium payments. The cash value is tax-free up to the amount of the total premiums paid; the rest may be accessed tax-free in the form of a loan against the policy. If you let the policy lapse, or if the insured dies, the death benefit is decreased by the amount of the outstanding loan.

    How to Choose?

    Term insurance vs. whole life insurance is dependent on various factors, such as your personal and financial situation. You need to know what you can afford, and what outstanding debts would need to be repaid. Term life will cover your death benefit for a specified length of time while whole life will cover it no matter your age. Every whole life policy pays out, but less than 1% of term policies do.

    When looking for the right coverage, it basically comes down to what you can afford. You pay more for whole life because it pays out regardless of age of death. You have the built-in cash value to borrow from, if necessary, but you need to be aware of any hidden commissions or fees that can wipe out several years of premiums. Term life policies are much more affordable because they are finite and have no cash-in value, and they are also not suitable for estate tax planning. It is great for families that only need coverage for a limited time in their life.

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    Expect the Unexpected: How Life
    Insurance Can Actually Save Your Life

    Many individuals who need to secure life insurance policies for themselves and their families neglect to do so because of the dreaded health screening. Not wanting to be gouged for higher premiums based on pre-existing health conditions that may or may not justify the price difference, many roll the dice on the financial security of their families and go without. However, very few people consider that the health screening required by most life insurance companies could actually be a blessing in disguise. Sure, the results of the testing may cause you to pay more than you wanted for life insurance, but what if the same health exam that you have been avoiding could play a role in actually improving your health, or even saving your life?

    I know first hand that such a thing is possible – my husband might be dead today if we had not applied for life insurance two years ago.

    When I became pregnant with our second and third children (twins) I began to press my husband to get the life insurance that he knew we both needed. We had been married for four years and had one child already, so life insurance should have been a priority long before then. However, my husband, like many others, hated the invasiveness of the required health screening, assuring himself that he was as healthy as a horse and did not need anyone trying to prove that he wasn’t. The reality was that we needed to be taken care of in case of his untimely demise, and knowing that eventually pierced his heart - we soon called a life insurance agent about policies for him and me. The application process went very smoothly; our agent was kind, helpful, and prompt. We even scheduled an in-home health screening for our convenience. Everything about this insurance company and their representatives was impressive – that is, until the nurse came to our home for the health screening.

    Our first impression was positive - the nurse was friendly, professional, and surprisingly not preoccupied with trying to discover hidden illnesses or ailments that we had not disclosed. She asked some basic health questions, drew my husband’s blood, and took his blood pressure reading. The reading, however, seemed to confuse her, as if she had not been nursing for very long. Eventually she became convinced that her gauge was broken, and left to get another. Upon her return visit, she still could not figure out what was going on with the blood pressure reading and had to consult with one of the insurance company’s doctors. As a former athlete and someone who knew that he had elevated blood pressure levels in the past, my husband was surprised that this nurse could have botched such a standard procedure; no one else he had ever encountered found such a simple task to be so frustrating. Later that day we got a call from the insurance company. Their doctor advised my husband to be seen by a medical professional immediately. The nurse was no novice – she had just never seen a reading that high before and assumed there must have been a problem with the meter. My husband’s blood work proved that what she had seen was no mistake, but a crisis for an unsuspecting family.

    After getting a second opinion from a local clinic, my husband rushed to the hospital for emergency care. Although he felt fine, my husband’s blood pressure was so high that the emergency room doctors were astounded; they had never seen anyone with such high numbers who was not having a stroke. One of the doctors actually asked him, “Did you walk in here?” The reason that they were so shocked was because his blood pressure had been measured consistently at approximately 290/185 – according to the American Heart Association, a normal reading for a healthy adult is a less than 120/80. My husband was immediately hospitalized and placed in the intensive care unit (ICU). Having no experience at all with hospitalization, he asked me why he was constantly being monitored by nurses and visited by different doctors. I explained to him that the ICU is where hospitals treat people who are facing extreme health deterioration and may not have much longer to live. That week he spent in the hospital was a very sobering time; it made us appreciate not only life, but the need to be prepared for the unexpected in life.

    Now, after two years of consistent treatment and monitoring, we are ready to search for a life insurance provider again. My husband’s health has improved, but not so drastically that it will not negatively affect our insurance premiums. However, we are extremely thankful that the entire ordeal took place – had it not been for the life insurance company’s health exam, my husband might have lost his life. He recalls how by the time he arrived in the emergency room he had begun feeling a little light headed. Had we not applied for life insurance, that day I might have just advised him to lie down and get some rest, not knowing that he was in grievous, mortal danger.

    Now I have a much more meaningful understanding of the old adage, “Expect the unexpected.” Our family can expect this: 2010 will be the year that we find a life insurance provider to suit our insurance needs, even if we have to shop around and pay slightly higher premiums than most.

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    Life Insurance Benefit Payouts:
    A Solution for Everyone

    We all understand that having life insurance (also known as life assurance) is extremely important. Once you decide the type of insurance policy that will suit your family (term, whole life, etc.), you should also think about how you would like your benefits to be paid out to your beneficiaries. Life insurance payouts (also known as a distribution) are basically how the insurance company pays out the policy upon the death of the policyholder. Whether you opt for a lump sum or choose to have the proceeds paid out over a certain number of years, there are various payout options for you to choose from that will suit just about every family’s unique financial situation.

    Some factors to consider while determining how you would like your life insurance policy to be paid out is:

    • Will you need the entire policy amount to pay off bills? Or is your policy designed to provide a steady income for a certain number of years?

    • Will the policy payout allow your survivors to reach their financial goals earlier (pay-off consumer debt, retire, etc.)?

    • What is your current age? Do you have children you wish to include as beneficiaries?

    Knowing the answers to these questions can help you assess your financial situation and make the best decision for your family.

    Lump Sum

    This option allows the beneficiary to extract the entire amount of the policy to pay for large expenses such as final expenses, mortgage payoff, or estate taxes. If you purchased your life insurance policy to ensure your family has a steady stream of income until, say, your children finish school, then this option is not the best. You would be better off choosing an income option, such as fixed amount income, etc.

    Fixed Amount Income Option

    As the heading states, using a fixed amount allows the beneficiary to specify a specific amount to be paid out by the insurance company until the balance is exhausted. For example, if the beneficiary needs $1500 per month to maintain their current lifestyle, they would tell the insurance company to pay them $1500 per month until the balance is exhausted. This option is nice because the remaining balance that the insurance company holds accrues interest, so your payout could potentially be more than the principal.

    Life Income with No Certain Period

    By choosing this option, your beneficiary will receive the proceeds of the policy for as long as they live, whether it is one year or twenty. Once they die, the income stops. For example, your spouse dies and names you the beneficiary. You survive your spouse by 12 years. For those 12 years you would receive a payout, and once you die the payments stop. You cannot specify another beneficiary with this option.

    Life Income with Certain Period

    This option is very similar to life with no certain period, but here you can specify ten, fifteen, or twenty years certain. This basically means that if you have been receiving life insurance benefits for three years (or however long the time may be) and you die, your named beneficiary will continue to receive benefits for seven, twelve, or seventeen years. This option is nice for young families because it allows your children to be cared for in the event that both parents die. You’ll want to make sure that some sort of trust fund and a guardian are in place, however. A legal and/or tax advisor will help you to nail down the specifics.

    Interest Income Option

    This option allows the insurance company to “hold onto” the principal balance of the policy, only paying out the interest to the beneficiary however they would like it; monthly, quarterly, annually. The beneficiary can decide if they want to continue receiving interest payments or if they want to take the entire principal. So if you have a $500,000 policy paying 6% interest, your beneficiary would receive $30,000 annually. If your beneficiary takes only interest payments, then their beneficiaries would receive the principal amount.

    Fixed Period Income

    With this option, the beneficiary basically tells the insurance company to pay them the policy balance over a period of fifteen years. The beneficiary would specify how the insurance company is to make the equal payments, such as monthly, quarterly, etc. This option usually allows the beneficiary to be paid more than if they had just taken one lump sum, as the balance left will accrue interest.

    Joint and Last Survivor Income Option

    This option is fairly straightforward; let’s say the parents of a husband and wife name them as beneficiaries. The payments would continue to the husband and wife, even if one died. Once both the husband and wife die, however, payments would stop.

    You’ve taken the first steps in securing your family’s financial future simply by purchasing a life insurance policy. A good financial planner can help you determine the best way to set up your family’s life insurance distributions. By having everything planned out, you will be doing your best to prepare your family should the unthinkable happen.

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    Life Insurance: Do You
    Really Know What You Need?

    Some people are plain grumpy. Teaching a night course on Personal Finance at a local college painted my memory full of stupidity from one specific student. My other students were great and as a class we learned a great deal. Even Ms. Grumpy would eventually come around.

    It just so happened I was much younger than Ms. Grumpy and this was my first adult teaching experience. I kept my cool and told the class from day one, "We all have something to learn, and if you can save yourself money from this, I have done my job." The big break came in about week 5, when we were on the topic of life insurance. I started class off with a short little introductory lecture on term life insurance vs. whole life insurance.

    Each time in your life requires different life insurance strategies; and knowing these strategies will save you money on the policy you purchase.

    1. Term and whole life insurance both cover expenses in case of death.

    2. Whole life insurance costs more because it is also a way for you to invest your money.

    3. Term life insurance is for a set period of years and with the lower premiums, you can invest your money your way.

    Whole life insurance makes insurance companies money, that is why many insurance salesmen push whole life. Term life insurance is cheaper and does provide for your dependents in the case of your death.

    There was a lot of glossed over faces looking at me, when Ms. Grumpy said, "I have a lot of money, I am divorced, my kids are out of the house, I have whole life insurance, and I know how to invest myself." "So I should get Term Life Insurance." I replied, "If you weigh the price and length of the polices and if you have enough discipline to invest the remaining money, then, yes."

    I could tell she was mad, but luckily this time it wasn't at me, but her Insurance company who had been selling here whole life insurance for the last 4 years, when she could have the same protection under a Term Life Insurance Policy. It was a great moment, Ms. Grumpy in her own way had learned something from the new teacher.

    Saving money in our budgets adds up in many different ways. Depending on you life situation, re-evaluating your life insurance needs could be one way to free up some extra cash for investing or paying down debt, while still giving you the protection for yourself or your family.

    I wish the story of Ms. Grumpy would have a happy financial ending, but when we got to the investing unit, finding out she had all her eggs in corporate bonds because they paid a 8% interest rate, would not let that happen. She said here is where all my money is and it is safe. That will be for our next story. Life Insurance is a necessary evil. Finding the right coverage can save you money and allow you to invest the way you see fit. Keep in mind, Insurance companies make a lot of money, but as a consumer you decide how much of yours they will get.

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    Employer-Provided Life Insurance: Is it Enough?

    Many employers include group life insurance as a way to round out their benefits package they provide to their employees. With low premium rates, no medical exams or prying questions, and pretty much guaranteed acceptance, at first glance it can seem like a great deal. But is it? Honestly, it depends on your individual situation. For the most part, group life insurance plans should be a supplement to your individual life insurance policy/policies, but if you are otherwise uninsurable group life insurance may be your best and only option. Here are some positive and negative points to ponder while deciding what will work best for you and your family.

    When enrolling in your employer-sponsored group life insurance plan, acceptance is pretty much guaranteed. Because this type of life insurance policy is not underwritten specifically for you, you could be a considered a “high risk” or “uninsurable” individual and still be covered. Some companies do have coverage caps that dictate exactly how much life insurance can be purchased before providing a proof of insurability. Some companies also have “open enrollment” periods where anyone and everyone is covered when enrolled during that time. If you decide to pass on the coverage during open enrollment and later decide to you would like coverage, more than likely you will have to prove you are insurable through a medical questionnaire or exam.

    Another nice thing about group life insurance is that you will pay a lot less for a group life policy than you would if you purchased an individual life insurance policy. The premiums are substantially lower because the life insurance company is writing a single policy for a large group of people. Even though they are covering everyone, no matter their health condition, the insurance company knows that even if some of the individuals covered under a group policy are a high risk, the other members of the group will most likely make up for it due to the Law of Averages.

    One of the major drawbacks to group life insurance is that the policy is not tailored for your specific situation. If you have a large family or have just made a large purchase, like buying a house, and need millions in coverage to cover your expenses should something happen, a group plan may not be the way to go. If a large amount is needed, you would probably be better off buying an individual policy outside of your employer. A group plan is a great way to supplement any individual policies you may have separate from your employer, but in some cases it's simply is not enough.

    Portability of a group life insurance policy is usually non-existent. Because this type of policy is provided through the employer, if you are separated from the company for any reason then your coverage will cease as well. This could leave you under-insured or even not insured at all, and depending on your health and age it may be next to impossible to obtain an individual life insurance policy. This is a prime example of why employer-provided life insurance should not be your primary source of life insurance coverage, and should not be relied upon: the coverage can change at any time. There are some occasions when the group life insurance policy can be converted to an individual life insurance policy, but it varies from employer to employer.

    Group life insurance can be a great financial tool, but it should be used in the right way. It should not be your only source of life insurance coverage, as coverage is usually terminated when you leave the company, putting your family in a potentially rough financial spot should something happen. Though the premiums are low compared to individual policies, the coverage is not tailored to meet your specific needs, and simply may not be enough (Fact: most company-provided insurance policies provide a death benefit equal to or less than $50,000.) If you are otherwise uninsurable, whatever you can get in group coverage is definitely better than nothing, but it would be prudent to try and get yourself insurable so you can have a life insurance safety net should you decide to leave your company.

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    Life Insurance Frequently Asked Questions (FAQ)

     

    Q: Is there a limit to the number of life insurance policies I can have?

    A: In the United States, there is no limit. In fact, financially savvy individuals often buy multiple policies from different insurance companies as a way of transferring wealth to beneficiaries tax free.

    When underwriting each new life insurance policy, an insurance company may ask you to list all additional policies you hold as well as their face value. They do this to make sure you aren’t over-insured compared to your income, and to help deter people from committing suicide/being killed over their policy amounts.

    Q: I'm over 65-years-old. Can I still get life insurance?

    A: Yes, but if your health is starting to fail/failing it may be very expensive. Life insurance is purchased differently for older adults than it is for younger ones. Older adults usually have most –- if not all -– of their debts paid down, so they typically need less coverage than a young adult who is just starting out. Because older adults usually purchase less coverage, this allows their premiums to be relatively lower, and insurance companies are more willing to write policies for older/sicker adults due to the reduced risk.

    Q: Is there a time limit for claiming life insurance death benefits?

    A: No, and a death benefit will gain interest until the policy is cashed out. As long as you can prove you are the beneficiary, the insurance company should pay out the benefit. The longer you wait, however, the more hoops you'll have to jump through to prove that you are in fact the beneficiary.

    Q: Is there a limit of how much life insurance a person can buy on himself?

    A: There isn’t a set limit, per se, but each life insurance company employs their own set of underwriters who determine the maximum amount of coverage the insurance company will provide. It will look suspicious to the insurance company if you are trying to buy coverage well above and beyond your annual income. The typical formula used to determine how much coverage you need is 10 times your annual salary; anything above and beyond that without a specific reason will raise red flags.

    Q: Can I purchase a life insurance policy on someone else, without their consent?

    A: Technically, it is possible, but it would be extremely hard to pull off, especially if the policy is for a large amount. Depending on the type of policy purchased, the insurance company may require medical exams/tests and the insured’s signature. The insurance company may also require proof that the person purchasing the policy has an insurable interest in the insured.

    However, you can take out an insurance policy on your own unemancipated, minor child without their consent.

    Q: Can I purchase a life insurance policy for my newborn baby?

    A: Yes. You can purchase a separate policy for your child or you can add your child onto your own life policy. If you can afford it, it's definitely a wise choice, as it can give a child a significant financial head start in life. A life policy on your child would also be a blessing if, later on in life, your child becomes uninsurable.

    Moreover, the younger the child, the lower the premiums.

    Q: If I make a late payment on my life insurance policy, will the terms of my policy change?

    A: No, the terms will not change, but if the payment is not made before the typical 30-day grace period, your policy may lapse. If your policy lapses and something happens to you, the insurance company may be able to deny the claim.

    Q: Is it a good idea to borrow money from my permanent life insurance policy?

    A: No. When you borrow from your life insurance policy, it reduces the cash value of the policy until the borrowed amount – plus interest – is repaid. If you die before repaying the “loan,” your beneficiary would not get the full face value of the policy, as the insurance company would keep the amount borrowed. For example: you have $250,000 in coverage and you borrow $100,000 and then die, your beneficiary would only get $150,000.

    Q: If I choose a life insurance policy that requires that I get a physical exam, do I have to pay for it?

    A: No, you won't have to pay a dime for any paramedical exam, doctor visit, blood test or any other exam related to a life insurance application. Click here for sample paramedical questions.

    Q: I can no longer afford my life insurance premiums. Are there any options to keep my policy from lapsing?

    A: Yes, but it depends on the type on insurance policy you have. If you have term life insurance and cannot pay your premiums, your policy, unfortunately, will lapse. You could try talking to your insurer before you miss a payment to see if it would be possible to lower the face value of your policy to lower the premium.

    Permanent life insurance has a few more options, depending on the specifics of your policy. You could cash out your policy and use the money as you see fit, remembering you will have to pay taxes for an early withdrawal. This option is generally only useful if you have been paying into the policy for several years. If your policy includes a non-forfeiture option, you can use the accumulated savings to pay the insurance premiums. This will result in a lower death benefit, however. And finally, if your policy has already lapsed you may be able to reinstate it if you renew within a certain time frame. The only catch with this is that your premiums may be higher and you will probably have to submit to another medical exam.

    Q: How much will my family’s medical history affect my ability to be insured?

    A: It varies from company to company, but generally if you have a family history of diabetes, heart disease, etc. before the family member in question turned 60, you will end up paying a higher policy premium than if your family history was clear. Even if you are healthy at the time of application, you may still not be extended the “preferred” premium rates, but rather their “standard” rates.

    Q: Will a DUI affect my ability to obtain life insurance, even if I am healthy otherwise?

    A: Yes. You could be the most healthy, fit person in the world with no family history of disease, but if you have been convicted of a driving under the influence or alcohol (DUI) or driving while intoxicated (DWI), and had your license suspended/revoked within the past 5 years, expect lots of application denials, or, if you're lucky, life insurance offers with the worst possible rates. There are companies out there that insure people who've had problems with drinking and driving, but these companies may require additional documentation from you, e.g. details related to the length of your sobriety. As with any high-risk situation, your premiums will invariably be substantially higher than they otherwise would be if you didn’t have a DUI conviction.

    Q: I have serious medical conditions -- both diabetes and high blood pressure -- that are under control with medication. Will I qualify for life insurance?

    A: Possibly, but it will probably be a lot harder for you to find an insurance company that is willing to insure you. You will also find that your premiums will be substantially higher than someone who is healthy at the time of application. Having an agent experienced in high-risk life insurance can facilitate your search, and can help you present yourself in the best possible light to the insurance company.

    Q: Will I have to pay taxes on the money I withdraw from my life insurance policy’s cash value?

    A: That depends. If you have a life insurance policy that allows you to withdraw from your cash value then you have two options: taking out a loan or simply withdrawing money. If you withdraw more than what you have paid into the policy (premiums), then the excess amount is what you would pay taxes on. For example, you have paid $10,000 into your policy and you decide to withdraw $13,000. You would have to pay income taxes on the $3000. The money you get from a policy loan would not be taxable as long as the loan is repaid within the timeframe specified by your insurance company.

    Q: Will my beneficiary have to pay taxes on my life insurance policy’s proceeds?

    A: The proceeds of a life insurance policy, also called the death benefit, are not subject to any federal taxes. However, if you elect to have the insurance company hold proceeds until a later date, any interest earned would be taxable.

    Q: How does a divorce change the way we have our life insurance set up?

    A: Life insurance can be a tricky thing to negotiate in a divorce settlement. In most cases, a judge will order the providing spouse to carry life insurance so that the supported spouse won't lose a valuable financial lifeline. The amount and length of the policy varies from family to family, depending on the age of the children. One thing that should be addressed is the ownership of the policy. If the providing spouse is the owner, then he or she is free to change the beneficiary at any time, potentially leaving the ex-spouse with no death benefit. If you are concerned that your ex-spouse will not continue a life policy, or will delete you as a beneficiary, you can always ask your attorney if the policy ownership can be changed. If it can and you would be paying the premiums, that could be figured into support payments. Always seek the help of a legal professional regarding divorce matters, as each situation is unique.

    Q: Do all life insurance companies have a contestable period, and if so, what happens if I die within it? Will they deny my beneficiary the death benefits?

    A: Yes, all life insurance companies have “contestable and incontestable periods” written into each policy. The standard is 2 years from the date the policy starts, but some are less. If it's two years, then during the first two years the policy is in force, if you die, the insurance company can deny benefits if it finds any errors or omissions on your application. After the contestable period, also known as the “incontestable period,” the insurance company cannot void your policy or deny your death benefits due to errors/omissions on your application.

    Q: Can an employer-paid life insurance policy be converted to an individual plan?

    A: Sometimes; it varies from company to company. Some employers allow you to convert your group coverage to individual coverage upon separating from the company, and some don’t. Your human resources department should have this information for you. If you are able to convert your group policy to an individual one, you may have to prove your insurability (medical exam, questions, etc.) and you may also have to pay the premiums in full for the year instead of paying monthly. Each company has its own set of conditions, so be sure you know what yours are before making any decisions.

    Q: If I start a new job that is hazardous, do I need to let my life insurance company know?

    A: If you are just applying for life insurance, it should be noted on your application. Insurance companies are very good at doing their research, and when they find that you’ve omitted something on your application, they can deny your death benefits and even cancel your policy. Although you would be considered an “impaired risk” to the insurance company and pay higher rates, being denied your benefits in the future because of an omission/lie would be much worse.

    If your policy is already in place and is within the contestable period, the insurer could make inquiries and quite possible deny your death benefit. Your best bet would be to ask your insurance agent directly, as they know your unique insurance situation best.

    Q: What will life insurance pay if you lose an eye?

    A: If you have added an Accidental Death and Dismemberment rider to your life insurance policy, then you would be paid whatever amount is specified in your policy. If you do not have the rider added to your policy and you lose an eye, you would not get any proceeds from your life insurance policy.

    Q: Is a medical exam necessary to buy paid up additions on life insurance?

    A: No. Generally, if you have an Option to Purchase Paid-up Additions (OPP) rider then you can either pay additional money into your policy, or use your policy dividends to purchase additional paid-up life insurance without proving insurability.

    Q: I had a stroke 6 years ago can I still get life insurance?

    A: Generally, you would be eligible for life insurance just one year after your stroke, but you’ll want to seek the help of a knowledgeable insurance agent to guide you through the process. Expect lots of questions regarding your situation and details about treatment. The agent should do his or her best to present you in the best possible light to the insurance companies. The less risk factors you have (diabetes, being overweight, high blood pressure, etc.) the more likely the insurance carriers are going to be willing to extend coverage to you.

    Q: Are there tests insurance companies use to see how long it’s been since you quit smoking?

    A: Life insurance companies can use any one of four tests to determine if a person has smoked recently or not. Blood tests, urine tests, mouth swabs, and even hair tests (though they are not widely used in the life insurance industry) are all able to detect nicotine and cotinine (a by-product of nicotine) within a certain period of time.

    The length of time these substances are detectable varies, depending on a number of factors, such as the height and weight of the applicant as well as how long it's been since the last cigarette was "consumed" and how many were smoked.

    It is important to note that if you are a smoker and you say you are not on your application, your death benefit may be reduced to only the premium payments made, plus interest, should you die during the contestability period (the typical contestability period is 2 years.) If your insurance company finds out you smoke within the contestability period, they will more than likely raise your rates to smoker's rates and may even make you pay the difference on all previous premiums paid.

    Even if you are a smoker, you shouldn't put off purchasing life insurance. Life insurance is available for smokers, at higher rates than those offered to nonsmokers. Although your premiums will be higher, if you can quit for at least a year (some companies require 2 or more years), your insurance company should allow you to retake your medical exam to confirm you quit. If you pass, your premiums may be lowered to that of a nonsmoker. Be sure to check with your agent for the specifics, as they vary from company to company.

    Q: I just had a baby and we are looking to purchase a life insurance policy. Will my “baby weight” affect my application?

    A: Possibly. Life insurance underwriters use height and weight guidelines at the time of application to determine the premiums you will pay. Although, to you, your weight gain is temporary, the insurance company might not see it that way. If you gained a lot of weight during your pregnancy, you have a couple of options. One option would be to wait until you take the baby weight off to apply for life insurance to be sure you get the best rate possible. The other option would be to apply for life insurance at your current weight, wait the standard year, and have another exam once the baby weight is off to reduce your premium.

    Q: Can I get life insurance if I have arthritis?

    A: There are two main types of arthritis: osteoarthritis and rheumatoid arthritis. Generally those with osteoarthritis who are applying for life insurance will have no problem getting a policy issued (unless other health problems are present.) Osteoarthritis, while painful, is usually treated with over-the-counter meds that have few – if any – side effects.

    Rheumatoid arthritis (RA), on the other hand, is better controlled with doctor-prescribed medications that can be extremely hard on the body. This, coupled with the myriad of other problems that stem from RA, makes insurance underwriters a bit more hesitant to insure someone with RA. Generally, the more mild your case of arthritis, the lower your rates will be.

    Q: Can I purchase life insurance regardless of mental health?

    A: It depends. Serious mental illness certainly puts an applicant in a higher risk category. However, if you have a history of mental illness, you may still be able to qualify for life insurance if you can show that you are being proactive in your treatments and that you're taking care of yourself. Documenting your treatments and their effectiveness is essential when applying for life insurance. Generally, the more recent the diagnosis, the less likely the insurance company will be to issue a policy. You will probably end up paying a higher premium, and you may be limited to a certain benefit amount.

    Q: If I just had a complete physical examination two months ago, do I need to have another one when applying for a life insurance policy?

    A: It doesn't matter if you've recently had a physical exam from your own doctor. If a life insurance company requires that you have a physical exam, they will send a professional to perform a paramedical exam ( Click here for sample paramedical questions.) Your own doctor cannot perform a physical exam as part of any insurance policy application.

    Q: Can I get life insurance if I had a heart attack 10 years ago?

    A: Yes, but there are several factors that will determine your chances for approval. By waiting at least a year or two after you suffered a heart attack, you could save a lot of money in premiums. You should also heed your doctor’s orders while waiting to apply: lower your blood pressure, cholesterol and weight, exercise, be disciplined with your meds, etc.

    When looking for a life insurance policy after a heart attack, do your homework and be sure to comparison shop. Premiums will vary widely from company to company. Having a knowledgeable agent can also help you navigate the life insurance waters to find the best policy for the best price.

    Q: Does company-paid life insurance decrease for someone over age 65?

    A: It can vary from company to company, but in most cases your benefit amount will decrease at age 65, sometimes by as much as 50%. A company doesn’t have to provide the same coverage for someone over 65 as they would for someone under 65. In many cases, insurers will cease coverage at age 70. Every company is different, so be sure to check the limits outlined in your policy.

    Q: Can my husband take me off of his life insurance policy after 40 years?

    A: If your husband is the policyholder, then yes, he can make any changes to the policy he sees fit, including changing the beneficiary or removing you from the policy entirely.

    Q: Will my life insurance policy still pay a death benefit if I die and alcohol or marijuana is found in my system?

    A: It depends. If the policy is within the period of contestability (usually the first two years the policy is in force) then the insurer most likely will not pay. Even if the policy has been in force longer than two years, the insurance company will investigate the death and look through your medical records before making their decision. If you lied on the application about using alcohol or marijuana then legally the life insurance company would not have to pay your claim.

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    Content on this webpage was updated on February 15, 2013

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