Saturday, April 14, 2007

Common Questions About Life Insurance

"When it comes to insurance, what you don't know can hurt you financially," warns Texas Insurance Commissioner Jose Montemayor. "Knowing about discounts, rate guides and how to file a complaint can save consumers money as well as a lot of grief."
Before you start shopping for an insurance policy, take a look at this list of common questions about life insurance.

Can I have more than one life insurance policy?

Yes. You could have a permanent life insurance policy and add a supplemental term life policy for a short-term need, for example. If you request more insurance coverage than your expenses indicate you need, the insurance company will want proof that a medical condition is not motivating your request.

What happens if I don't make the required premiums?

Typically, you will have a 30 or 31-day grace period. If you pay within this time frame, you won't be charged additional interest. If you don't pay within the grace period, your policy will lapse. With a permanent policy; however, you can usually draw from the cash value to continue your premium payments. This will lower the cash value of the policy, though.

If you are unable to pay because you have become disabled, and you elected a "waiver of premium" provision or rider on your policy, you do not have to pay premiums for the duration of your disability.

What if my policy lapses?

If a policy lapses, most companies allow you a grace period in which to pay your premium and continue the policy. If you have enough cash value built up in your policy, most companies will use part of the cash values to pay the premium due. If you have a term policy and don't pay within the grace period, your policy will lapse and simply end.

Do I need life insurance if I'm a young, single person? An advantage to buying life insurance now is your premiums will be low. If you have dependents in the future, you will have locked in the lowest rates, and you will have guaranteed your "insurability" because you won't have to take a medical test for life insurance in the future.

Are there cases in which I don't have to take a medical exam to buy life insurance?

Group policies don't require medical exams. Unless you are buying Supplemental Group Life, or asking for a higher amount than the standard coverage level for the policy, you don't have to provide medical documents. Most group life insurance enrollments are held annually through an employer (usually larger corporations offer group health benefits).

What do insurance companies look for in the medical exams?

For individual life purchases, you will be classified based on height, weight, nicotine use and other health factors. Your health status will determine what rate class category you fit in, so even if you have some health problems, you could be covered. Your agent or insurance company should explain what criteria determined the class into which you fall.

If you don't qualify for their best rate today, you might be able to improve your rate category if certain health factors improve. For example, a 35-year old woman buys a life insurance policy. She is 50 pounds overweight, has high blood pressure, and is trying to quit smoking. Two years later, her policy is still in force and she has lost 50 pounds, her blood pressure is normal, and she has been nicotine-free for a year. She could talk with her agent about a revision in medical underwriting on her policy, possibly reducing her rates.

If the medical evaluation showed a condition for which she would be classified into a higher rate category, she could remain at her current rate. The insurance company would not reclassify her into a higher rate bracket.

Can I buy a policy on someone else?

Yes, but only if you have an "insurable interest" in that person. This usually means a relative, a domestic partner or live-in companion, or a business partner. There are products such as first-to-die and second-to-die that allow you to insure the life of another.

Can I buy a policy on someone else without them knowing about it?

No, you cannot take out an insurance policy on someone without his knowledge.

Can I name anyone I want as my beneficiary?

While most people choose only their spouse, it is possible to name more than one person as a beneficiary - but only if those persons have an "insurable interest" in your policy. For example, if you have a $100,000 individual life insurance policy on your own life, you could name your spouse and four children to share in the policy equally at $20,000 each.

Do life insurance policies ever cancel each other out?

If I have a credit life policy and a whole life policy, will one not pay out? No. Upon your death (assuming you have paid all the necessary premiums), the credit life policy will pay out according to the terms of the policy (paying off your credit card balance, and so on) and the whole life will pay out according to the terms of its policy (your full death benefit).

Alabama Insurance Regulator David Parsons says regardless of the type of life insurance policy you buy, make sure you get all the facts about the policy and your other options. " It's about making sure your family is properly covered," says Parsons, who urges all insurance customers to take advantage of the consumer services offered by their states. "We believe state insurance departments are the best resource for insurance-related questions and concerns," Parsons says.



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