FAQS - GENERAL
We’ve compiled some of the most common questions we receive about our Life Insurance Agency and the industry below. Feel free to contact us with any other inquiries you may have or if you still need further help.
WHY DO I NEED LIFE INSURANCE?
The better question to ask yourself is: Does anyone in my life depend on my financial support? If the answer is yes, then you probably need life insurance. This could be a spouse, children, parents, siblings, etc. The purpose of life insurance is to protect your loved ones from financial burden.
WHAT IS THE BEST TYPE OF LIFE INSURANCE?
Each type of life insurance (whole, term, or universal) has a specific purpose. So it's important to take into account each person's specific needs and goals while also considering their current financial situation.
For final expenses like cremation / burial / funeral, the permanent life policies (whole or universal) are the way to go. Guaranteed final expenses like that should have a policy that's going to pay your beneficiaries regardless of when you pass away.
Term life policies are meant for a specific duration. So that could be 10 years, 15, 20, 25, etc. They are typically a lower monthly rate because they are temporary policies, not permanent. They're great for protecting a remaining mortgage balance, families with young kids looking for financial protection, protecting a spouse if there is one primary income earner for the household , etc.
Most people don't realize you can have both types of policies at the same time (which is a cost effective way to get the coverage you need now, and into the future as well). An open dialogue between you and your insurance broker is the key to finding the best plan for you.
WHEN SHOULD I GET MY OWN LIFE INSURANCE?
It really does depend on each person's needs at that time in their life. All insurance rates are lower at a younger age and younger people typically have less health conditions that could cause an adverse rating or a decline of coverage as well.
It is recommended to review your life insurance needs every few years to make sure your original plan still makes sense for you.
I HAVE LIFE INSURANCE THROUGH MY EMPLOYER, WHY WOULD I NEED MORE?
Employer benefits do not always stay with you after you leave the company. Whether it’s a retirement, layoff, or you are just changing employers, it is recommended to have your own insurance in place so it stays with you for as long as you need it.
IS IT POSSIBLE TO HAVE TOO MUCH INSURANCE?
Yes. Each person's needs and financial situations change over time, so your life insurance coverage should be reviewed every few years to make sure what you have in place still makes sense for you.
ARE ALL LIFE INSURANCE COMPANIES THE SAME?
No. The insurance products offered can differ, the customer service from the top to the bottom is very different, and the financial stability of each company is unique as well. Each company also has different health conditions they are willing to approve. The Better Business Bureau (BBB) and A.M. Best ratings for each insurance company are a reliable starting point for determining which company you should consider.
POLICY TYPES
WHAT IS WHOLE LIFE INSURANCE?
Whole life insurance is the only life insurance that is guaranteed to pay the death benefit for your whole life. Whole life insurance policies never expire and the monthly cost never increases. They build cash value over time at a guaranteed rate. They are higher cost than term life and universal life because they are guaranteed to pay out for your whole life.
WHAT IS TERM LIFE INSURANCE?
Term life insurance is guaranteed for a specific length of time, for example 10, 15, 20, or 30 years. During that time, the monthly cost will not change. Once the term of coverage expires, you will stop paying the monthly premium and the policy will terminate. The costs are typically lower in comparison to a whole or universal life plan with the same amount of coverage.
Term life policies are an effective, low cost way to protect younger families where one of the parents is a major source of income. Families looking to cover their home mortgage debt would also benefit from having a term life plan in place.
WHAT IS RENEWABLE TERM LIFE INSURANCE?
For a renewable term life insurance policy, once the initial term ends, the policy will automatically renew at a higher monthly cost based on your age at the time of renewal. These plans will not require any medical questions or exam on renewal.
Unfortunately, to sound more appealing at the time of sale, these are often described as “term life plans that are good for your whole life” which is a true, but misleading statement. Term life policies are meant to cover a specific cost and duration (a mortgage loan, income protection for a young family until the kids are through high school, etc). They are not a cost effective way to provide life insurance coverage for your whole life.
Renewable term life plans are the biggest problem we encounter because most people who have them believe they have a whole life insurance policy, when the reality is that they do not. Each person will end up canceling their policy as it becomes unaffordable.
WHAT IS UNIVERSAL LIFE INSURANCE?
A universal life insurance policy is a great way to get coverage that will last for your whole life, while being at a lower monthly cost compared to a traditional whole life policy. They build cash value which grows on average about 6% per year while paying the full death benefit from Day 1.
The approval requirements for universal life are more strict than with whole life policies, so the person would need to have little to no health conditions.
HOW IS LIFE INSURANCE APPROVED?
GUARANTEED ISSUE
If a company advertises guaranteed approvals, they are referring to guaranteed issue life insurance. There are no physical exams and no health questions asked.
While this may sound great, guaranteed issue plans will have a waiting period (usually 2 or 3 years) before the policy will pay a death claim. They are also more expensive than the other types of approvals and the death benefit payout will be less.
SIMPLIFIED ISSUE
We understand not everyone wants to take a physical exam to get a life insurance policy approved, but it is highly recommended to at least answer a few health questions to get approved - this will help you get better rates and coverage that starts on day one. Pre-existing health conditions can still be approved too (see our “Health Conditions” page for a full list).
This is our area of expertise, so you may as well let us do the work for you!
MEDICAL APPROVAL
For those in great health who don’t mind taking a physical exam to get approved, there’s no better way to maximize the death benefit payout at the lowest cost.
For all larger policies, a full medical approval is required by every company out there. There’s just no such thing as a $2 million dollar policy with no medical exam - every insurance company out there will not take on that kind of risk without knowing the person is completely healthy.
MISCELLANEOUS QUESTIONS
WHAT THINGS CAN LIFE INSURANCE COVER?
— Final expenses such as cremation, burial, funeral
— Mortgages
— College expenses
— Cost of living for your family
— Estate taxes that your family members must pay for other assets
— Other miscellaneous loans and expenses
WHAT IS THE DIFFERENCE BETWEEN AN INSURANCE AGENT AND AN INSURANCE BROKER?
An agent typically works with one insurance company, while a broker has the ability to work with several insurance companies.
Every person has specific life insurance needs and each company has different insurance plans. So what happens if an agent for Company X doesn’t have exactly what you’re looking for? They will offer whatever product is available, which may not be the best fit for you. The broker, however, can work with whichever company is going to offer you a plan that provides the most value to you.
HOW LONG SHOULD MY COVERAGE LAST?
At a minimum, the typical recommendation is to have guaranteed debts or financial obligations covered by a guaranteed life insurance plan.
For example, if you have 15 years and $150,000 left on a mortgage, then a term life plan for that duration and coverage amount would make sense. If you want to cover an anticipated $15,000 funeral cost, then a whole life insurance policy for $15,000 would be a great option.
WHERE SHOULD I KEEP MY POLICY?
You should always keep a hard copy of your life insurance policy in a safe place where it won’t get ruined or damaged. Digital copies are usually offered through the insurance companies as well.
It is also a good idea to inform your beneficiary that you have an insurance policy. Even if they don’t know all of the specifics of the policy itself, just knowing which company the policy is with can save a lot of frustration for them after you pass away. It is estimated that 1 in 600 life insurance policies are unclaimed.
WHAT HAPPENS TO THE MONEY I PAY INTO A TERM LIFE INSURANCE PLAN IF I OUTLIVE THE COVERAGE TERM?
Unless you have a Return of Premium (ROP) rider included in the contract, the policy would expire worthless.
Note: Term life policies with ROP will cost more than a similar term life policy without ROP.
WHAT DOES MY BENEFICIARY NEED TO DO TO RECEIVE THE DEATH BENEFIT?
The beneficiary would need to provide proof of death for the claim to be processed with the insurer. While it’s not required that the beneficiary knows all the details of the policy, it is recommended that the beneficiary at least knows the policy exists so the death benefit does not go unclaimed.
CAN I PAY FOR LIFE INSURANCE WITH A CREDIT CARD?
Most life insurance companies will not allow recurring payments to be made with a credit card. They will allow you to pay the initial premium with the credit card, but recurring payments would need to be made by Electronic Funds Transfer (EFT) or Preauthorized Check (PAC).
WHY ARE ELECTRONIC FUNDS TRANSFERS (EFT) OR PREAUTHORIZED CHECKS (PAC) THE PREFERRED METHOD OF PAYMENT?
The most important reason is because these payment methods are the most likely to prevent your policy from lapsing.
For security reasons, credit card numbers change frequently. So if a credit card number changed and your monthly payment was missed, the policy could lapse and you would be left with no insurance coverage. The same applies to payments made by paper check. If a person gets bedridden, goes to the hospital for an extended period of time, or has memory issues and forgets to mail it out, the policy could lapse as well. It’s an unfortunate situation that both the insured and the insurer don’t want to be in.
HOW MUCH DOES A CREMATION, BURIAL, OR FUNERAL COST?
The costs will change from one location to another, but generally speaking this is the minimum recommended amount of coverage you should apply for:
— Cremation ~$5,000
— Burial ~$10,000
— Funeral ~$15,000
It’s important to note that each of these costs are expected to increase over time. Depending on your age when applying for life insurance, the amount of coverage you would need one, two, or more decades from now would need to be accounted for
WHY DO LIFE INSURANCE COMPANIES REQUIRE A SOCIAL SECURITY NUMBER?
It is needed to confirm your identity, prevent fraud, check your Medical Information Bureau (MIB) record and prescription drug history, and review your criminal record (if you indicated that you have one).
DEFINITIONS
WHAT IS A BENEFICIARY?
The primary beneficiary is the person who will receive the death benefit. You must choose a primary beneficiary. You also have the option to choose a contingent (backup) beneficiary.
Let’s say you have $20,000 of coverage and your spouse is a 100% primary beneficiary. You also designate your two children as contingent beneficiaries, 50% each. When you pass away, if your spouse is still living, they would receive the full $20,000. Your two children would not receive the death benefit since they are contingent beneficiaries.
If you and your spouse both die in a car accident, since your spouse is the primary beneficiary and would not be alive to receive the death benefit, your two children would each receive 50% of the total, which is $10,000 each.
WHAT IS A DEATH BENEFIT?
The death benefit is the amount of money that the life insurance company will pay to the beneficiary upon the insured's death. This will be a tax free lump sum payment.
For example, let’s say a person has a $20,000 face amount and it includes an accidental death benefit rider that pays double if the death is a result of an accident. If the person dies naturally, the death benefit would be $20,000. If it were an accidental death, the death benefit would be $40,000.
WHAT IS THE FACE AMOUNT OF THE POLICY?
The face amount is the amount of death benefit that will be paid out by the insurance company, upon the insured's death. The face amount does not include additional amounts that may be included as riders.
WHAT IS UNDERWRITING?
Underwriting is the name for what insurance companies do during the application process to determine if you are eligible for the coverage you are applying for.
They will review your health and prescription records, then determine if you are a good candidate for an approval.
This is also what we do here... we ask a few health questions and do our own underwriting to determine which company should approve you. So when we apply, we are confident that you will get approved at the best rate possible.
WHAT IS A LEVEL PREMIUM PAYMENT?
Level premium with regards to life insurance means that the monthly cost will stay at the same price up to the guaranteed date of the policy.
RIDERS
WHAT IS A RIDER?
A rider is an optional feature or benefit that can be added to a life insurance policy. Some insurance companies include certain riders for free, while other riders may have an additional cost.
WHAT ARE SOME FREE RIDERS?
The two most common free riders that are included with several of the companies we work with are:
— Accelerated death benefit / terminal illness rider, which gives you access to your death benefit before you pass away if you are diagnosed with a terminal illness.
— Nursing home / home health care rider, which gives you access to your death benefit before you pass away to help pay for nursing home expenses or costs associated with an in-home nurse.
ACCIDENTAL DEATH BENEFIT RIDER
This benefit pays 2 to 3 times the face value if the death is a result of an accident.
RETURN OF PREMIUM RIDER
This rider is used in term life plans. Did you know that most term life policies expire worthless? Since the term plans are typically shorter in duration, most people will outlive the duration of their term policy.
If you get to the end of your term coverage and are still living, the return of premium rider will refund all of the monthly premiums paid.
TERM CONVERSION RIDER
This rider allows you to convert a term life policy into a whole life policy. There is usually a window of time that you will be allowed to convert (by a certain policy year or by a certain age). This will allow you to get approved for the whole life coverage without having to go through the underwriting process again.
While the term conversion rider sounds pretty good, the conversion itself is not so great. Based on the value of the plan, we often find that the person is better off applying for a new whole life plan than converting their existing term policy. A lot of companies will convert the term plan to a standard rate whole life plan, not the preferred rate.
If you foresee yourself needing whole life coverage, it is best to get it as early as possible and avoid paying extra for these sorts of riders on a term plan.
WAIVER OF PREMIUM FOR DISABILITY RIDER
If you become disabled and are unable to work, this rider would exempt you from paying your premium. In most cases, the disability would have to prevent you from working any job, not just the job you had. So it’s important to understand the details of how a rider like this actually works before paying more for it..
WHO'S WHO?
WHO IS THE INSURER?
The insurer is the insurance company that will pay the death benefit to the beneficiary of the insured.
WHO IS THE INSURED?
The insured is the person who the life insurance will cover. When the insured dies, the death benefit will be paid to the beneficiary.
WHO IS THE POLICY OWNER?
The owner of a life insurance policy is the only person who can make changes to the policy. This could be anything from an address change, to beneficiary changes, to updating banking information.
In most cases the insured will also be the owner, but it is fairly common for a child or spouse to be the owner of a life insurance policy.
WHO IS THE PAYOR?
The payor is the person who will be paying the monthly premium for the insurance policy.