20 Frequently Asked Questions
By James Tobin, CFP ®
Below are brief answers to 20 of the most common questions asked about life insurance. For more in-depth discussion of the question follow the links provided in the answers. if you need help you can always call the Life Insurance Help Desk.
Expert Reviews from the life insurance help desk
What Types Of Life Insurance Are There?
Life insurance is either term insurance or permanent insurance. The term contract ends at the end of the policy term. permanent insurance is designed to last your whole life. Permanent insurance is broken into whole life, Universal life and Guaranteed Universal life. Small final expense policies are whole life policies as are guaranteed issue policies.
How Much Life Insurance do I need?
The answer to this question is personal and centers around how much you'd like to protect your loved ones from financial hardship should you die at an earlier than expected date. The Life Insurance Help Desk outlines a plan called L.I.F.E., which takes into account your debts, income and future expenses. The L.I.F.E. formula can be found here.
how Much Does Life Insurance Cost?
The cost of life insurance has many contributing factors. Chief among them are age and health, with length of term, carrier and riders also playing a significant role. This multitude of contributing factors is a major rationale to use an independent broker like the Life Insurance Help Desk. To get an idea of cost, you can use the free quote tool.
what is The Application Process
The application process is an eight step process that involves choosing terms, getting pricing, picking a quote, submitting an application, possibly taking an exam, awaiting underwriting, getting an offer, and taking delivery. The good news is that the customer portion can often be done in less than a half hour.
Will My Driving History matter?
it may. It will depend on the type of insurance you are buying (final expense carriers won't care). if you are looking at traditional term or permanent insurance, your driving record will be taken into consideration. Recent (within a 1-2 years) serious driving charges like DUI , reckless driving or a suspended license will have an adverse effect.
What About SCUBA Diving or Other Risky Activities?
All hazardous activities whether SCUBA, rock climbing, or a dangerous job have the possibility of affecting your rates. These are situations where it is important to provide as much detail about the risk as possible to your agent. It is then possible to gauge the different carriers appetite's for the risk involved.
how Long do I Need to Quit Smoking to be a "non-smoker"?
It depends on the carrier. However to be eligible for the best rates (preferred plus) it is often 5 years. However most carriers will consider you a non smoker and eligible for standard/standard plus rates after 12-24 months. There are lenient non-smoker guidelines for occasional cigar and marijuana users.
What are the best Life Insurance Carriers?
Because different carriers have different risk appetites, the carrier that is best for you may not be the best for your spouse. Nonetheless, The Life Insurance Help Desk has put together a list of top term carriers.
What are policy riders?
Riders are contractual amendments that modify your policy. Some riders have a cost associated with them and some do not. Some common riders are child rider, waiver of premium, future insurability rider, and living benefits rider. For a full discussion of riders see the Ins and outs of the best term policies.
Do all policies have living benefits?
all policies now have some ability for terminally ill policy owners to access a portion of the death benefit prior to death. Many policies go far beyond the legal requirement and terms vary from carrier to carrier.
Is there a cost break if I pay annually?
Yes there is. The price break usually represents about a 4-5% savings on the annual premium. The exact savings will vary from carrier to carrier. The quote tool will show both a monthly and annual payment.
How long before a beneficiary is paid out?
If the policy is more than 2 years old and there is no reason to believe there were material misstatements in the application, the policy should pay out in under a week. If the policy is within the 2 year contestable period, the carrier may do a brief investigation that will delay payout by a month or more.
Can I change the beneficiary?
Yes. As the policy owner you have the sole authority designate and change beneficiaries. This power may be restricted if the policy is court ordered as part of a divorce settlement or is being used as collateral for a loan.
Can I sell or gift the policy?
As the owner of the policy, you have the right to sell or gift the policy. Consult with your tax advisor before transferring any ownership as there may be tax implications. The ability to sell or gift the policy may be restricted if the policy is court ordered as part of a divorce settlement or is being used as collateral for a loan.
Should I just bundle my life insurance with my home and auto?
While it is tempting to have all your insurance "under on roof", it is seldom a good idea. Unlike home and auto, there are no direct "discounts" available on life insurance allowed by law. By bundling you are stuck with whatever is offered by your home and auto carrier. Competition is essential to finding the best price. Moreover, if you have health issues, you want to be able to shop the carrier who has the biggest appetite for insuring that condition.
Why should I use an independent broker?
The reason to use an independent broker is that is simply gives you the best chance to find the policy that works best for your unique situation. As opposed to only having the option of the carrier who an agent works for, an independent can look for better rates, detter riders, and most important (if your health is not perfect), the carrier who is most lenient in underwriting your health condition.