Life Insurance Questions – Part 1

During my years as an insurance broker, I’ve sold countless life insurance policies and it seems that no matter who is sitting across from me the questions are the same. I thought it would be a good idea to answer what seem to be the 10 most common questions:

1. How much life insurance do I need?
2. Should I cover my spouse and child(ren)?
3. Can my policy ever be canceled?
4. What is the difference between Term Life and Universal Life?
5. Can I purchase coverage on someone else?
6. Can I name anyone that I want to as my beneficiary?
7. Is it possible to purchase life insurance without taking a medical exam?
8. What will the insurance company look for in the medical exam?
9. What are the differences between preferred rates, standard rates, and substandard rates?
10. Are life insurance benefits taxable?

HOW MUCH LIFE INSURANCE DO I NEED?
This is the most commonly asked question. Unfortunately, it’s not so easy to answer. Let’s save this question for the next Blog entry.

SHOULD I COVER MY SPOUSE AND CHILD(REN)?
Coverage for both spouse and children can be a very good idea. The financial strain on a family after the loss of a spouse can be significant, even if the deceased wasn’t earning an income. Often the surviving spouse will want to take time off work to grieve and spend more time with the children. An appropriate amount of LIFE INSURANCE on your spouse will allow you to do just that without worrying about paying the bills. Coverage for children is a good idea for the same reasons. Also, covering your children now will guarantee their future insurability since life’s unexpected turns may prevent them from qualifying later.

CAN MY POLICY EVER BE CANCELED?
As long as you keep your premiums current your policy can never be canceled, not even for a change in your health.

WHAT IS THE DIFFERENCE BETWEEN TERM LIFE AND UNIVERSAL LIFE?
This question is actually a little easier to explain than it may seem. Simply put, term life insurance provides coverage for a specific amount of time. For example, a 20-year term policy would offer a death benefit in exchange for a predetermined monthly premium for 20 years; when the 20 years is up the coverage ends. On the other hand, universal life insurance provides a death benefit throughout the life of the insured; you can’t outlive it.

CAN I PURCHASE COVERAGE ON SOMEONE ELSE?
Yes, but only if you have an “insurable interest” in that person. This usually means a relative, spouse, domestic partner/live-in companion, or a business partner. Also, generally speaking, the person being insured must give his/her consent before applying for coverage.

CAN I NAME ANYONE THAT I WANT TO AS MY BENEFICIARY?
Yes, you own the policy and you can name whoever you want to as the beneficiary. While many people choose only their spouse, it is possible to name more than one person as a beneficiary. For example, if you have a $100,000 individual life insurance policy, you could name your spouse and four children to share in the policy equally at $20,000 each.

IS IT POSSIBLE TO PURCHASE LIFE INSURANCE WITHOUT TAKING A MEDICAL EXAM?
While some companies will forgo a medical exam depending upon the type of policy and the amount of insurance applied for, most companies do require a medical exam and will not finish the underwriting process without one.

WHAT WILL THE INSURANCE COMPANY LOOK FOR IN THE MEDICAL EXAM?
Basically, the exam is to confirm your current health status; your health status will determine what rate class you fit into. Your agent or insurance company should explain what criteria determine the class into which you fall. Keep in mind that if you apply for coverage and do not get the rate class that you were hoping for it is possible to have the rating improved later. Ask your agent or insurance company for more details.

WHAT ARE THE DIFFERENCES BETWEEN PREFERRED, STANDARD, AND SUBSTANDARD RISK CLASSES?
Preferred risk classes are rewarded to people that are a better than average risk for the insurance company to offer coverage to. Typically, people that qualify for preferred rates are of average height and weight, do not smoke, exercise regularly, and live a healthy lifestyle. A standard risk class might be assigned to someone that is outside of the “preferred” height/weight table or is currently taking medication. A person that has or has had health problems, takes several medications, or partakes in any high-risk activities (mountain climbing, skydiving, etc.) can expect to receive a substandard rate. To get a better idea of what rate class you would fit into, provide as much information about yourself as possible when you request your Tennessee life insurance quote.

ARE LIFE INSURANCE BENEFITS TAXABLE?
If a beneficiary receives the proceeds of a life insurance policy because of the passing of the insured then the benefits are not taxable income and do not have to be reported to the Internal Revenue Service. However, any interest received would be taxable and should be reported just like any other interest that has been received during the tax year.

Hopefully this blog entry has been useful to you and you’ve gathered enough information to request your life insurance quote. If you still have a question that was not addressed here please send a comment and I’ll happy to answer it for you.

Remember to check back next week for the answer to the most common Tennessee life insurance question. See you then!