Life Insurance Q & A
A while back I was writing a wealth creation book for CNBC and, in the research phase of that project, I developed some life insurance themes for people who may not be too sure about life insurance.
Let’s see if they can help straighten some issues out:
Why do I need life insurance?
Because it plays a valuable role during various stages of life. For example, it can help pay off debts, provide funds to survivors so they can replace lost income, provide education to children, and cover funeral and other expenses, among other things, when a breadwinner dies.
How much life insurance do I need?
It depends on your personal financial information and how much your family will need financially if you die. When calculating that amount, it’s also good to consider any immediate needs at your death (i.e., funeral expenses, estate taxes, final illness expenses, etc.), family needs, day care costs, college tuition, and debt cancellation.
How do I choose a life insurance agent?
Recommendations from friends, family and financial institutions you trust can be good methods for selecting an agent. You want to make sure that whoever you choose is licensed to sell insurance in your state and has the right professional credentials and associations.
What should I expect from my insurance agent?
An insurance agent will help you determine your various insurance needs and understand the various types of policies. He or she will review your coverage periodically and recommend new products and strategies
when appropriate.
Will I need to have a medical exam?
It depends. When you apply for insurance, underwriters, at the insurance company’s expense, will look at the amount of life insurance you want, your age and health and other related information, and then make a determination as to whether you need to be examined.
Should I purchase insurance on my spouse?
If your spouse contributes to your family’s income, it may be a good idea to protect his or her life with insurance. This is especially true if the loss of a second income could result in immediate economic hardship for your family, a change in your standard of living or plans for your future. Consider that even if the spouse is a homemaker, you would have to spend hundreds, perhaps even thousands, of dollars each month to replace the services he or she provides.
Once my insurance policy is issued, can the insurance company cancel my contract if I develop medical problems?
No, assuming you did not misrepresent any of the information you provided on your application. You, however, may voluntarily elect to cancel your policy at any time.
Will my beneficiary have to pay income tax on the life insurance death proceeds when I die?
In general, life insurance death proceeds are not included in the beneficiary’s gross income for federal tax purposes. For example, if you were insured for $100,000 and you died, your named beneficiary would receive the entire $100,000 tax free. That’s assuming there are
no outstanding loans.
May I change the beneficiary on my life insurance policy?
Yes, unless there is an irrevocable provision that states the beneficiary can’t be changed.
Why does my insurance cost more than what I was originally quoted when I applied for coverage?
Many factors go into deciding your insurance premium. These may include age, sex, lifestyle (i.e., tobacco use, obesity, etc.), medical history, hobbies and occupation. During the underwriting process, any of the information you provide can affect the premium on the policy.
Note that these Q & A’s only cover the basics — and there is much more to life insurance for you and your family. Hopefully, though, these themes can get you started.
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