Frequently Asked Questions on Life Insurance
Written by Tina Phu, Yun Yang   


1. What does it mean to be the owner of a life insurance policy? Who is the owner of my policy?
Usually, the insured is also the owner unless the policy has been specifically set-up to have a different owner. The owner is the person who has the authority to change the beneficiary and make other policy changes.

2. What will happen if I can’t pay my life insurance premiums?
If you stop paying your life insurance premiums, your coverage will cease. You will not be entitled to any refunds on money you have paid in. It is important to budget your life insurance payments realistically before purchasing coverage so this will not happen.

3. My life insurance company has become insolvent. What should I do?
Typically, the state insurance regulators will persuade another insurance company to take over the policies of the company being liquidated. You will most likely still have coverage, but you may not receive all of the benefits you had hoped. You should be contacted by the insurance company itself, the company's receiver (usually the state insurance commissioner), or by the guaranty association. The communication you receive will tell you what you need to do and often contains the forms you need to move your policy to another insurance company. If you don't hear from someone soon after the insurance company is declared insolvent or taken over by a receiver, call the company, your agent, your state's guaranty association, or the state insurance department.

4. What is a life insurance medical exam and how should I prepare for it?
Generally, you won't have to take a medical exam if you're under age 40 and applying for life insurance coverage of less than $100,000. However, the older you are, the less life insurance you can buy without a medical exam. These figures also depend on your health history and the underwriting guidelines of the insurance company you choose. A typical medical exam may include a basic physical, blood work, and urine tests. You'll also have to provide information on your medical history, including the names of doctors you've seen, dates you saw them, and any treatment recommended.

5. Can the policy be cancelled?
Yes, but only by the person that is insured. The life insurance company cannot cancel the policy due to a change in your health.

6. Would I need life insurance if I am single?
Even if you are single, it is highly recommended that you consider life insurance if you have kids, any serious medical conditions, or mortgages or loans jointly held with a cosigner.

If you purchase life insurance because you know you have a family history of any serious medical condition, be sure to purchase a guaranteed insurability rider. If you have a family history of any serious medical condition, it may be impossible to purchase life insurance after you develop the condition.

If you have any mortgages or loans jointly held with a cosigner, after you pass away your cosigner will be entirely responsible for the mortgage/loans if you didn’t purchase life insurance. You should also consider who will be responsible for your funeral/burial costs if and when you pass away.

Even if you decide not to purchase life insurance, at least consider disability insurance.

7. What is burial insurance?
Burial insurance refers to a whole life insurance policy with a death benefit of $5,000 to $25,000. This type of policy is purchased to cover funeral and burial costs for the insured. It is possible to buy this policy by answering a few questions on the application with no medical exam.

8. What is a death benefit?
The death benefit is what the insurance company will pay your beneficiaries at the time of your death. It is the face value of the policy minus any unpaid policy loans or other insurance company claims against the policy.

9. What does "insurable interest" mean?
If you purchase life insurance for someone, you must have "insurable interest," meaning you must have an interest in that person remaining alive, or expect emotional or financial loss from that person's death. This prevents strangers from purchasing life insurance for the elderly and collecting the proceeds when they die. It also prevents someone from hastening or causing someone else's death. Relationships founded on monetary interests can also have insurable interest such as a creditor and his/her debtor, a business and a key employee, and partnerships or stockholders in a closely held corporation. You must have insurable interest at the time of the purchase of the policy.

10. Is it possible to purchase life insurance for a terminally ill person?
Yes, it is possible. You can purchase a “graded life” policy for up to $50,000. The key is to find a knowledgeable broker with experience in these types of tough cases. This means that the company only returns premium if the insured dies before 2 years, but if they live beyond that, the full insurance benefit is paid.

11. How do I change the beneficiary of my insurance policy?
The owner of the policy can easily change the beneficiary by filling out a form provided by the insurance company and having it properly witnessed.

12. What is better, group life insurance or my own individual policy?
Group life insurance is generally cheaper than life insurance purchased through a separate company. Sometimes employers shoulder the entire cost of life insurance. Employees wouldn't need to go through a screening phase to qualify for group life insurance. The disadvantage to group life insurance is that the policy isn't customized to your individual needs. In addition, if you quit/lose your job, you cannot take your employer-sponsored insurance policy with you. After you quit/lose your job, you may be under-insured or it may be difficult for you to obtain an individual insurance policy (due to age, medical conditions, etc).

13. When is the best time to buy life insurance?
The best time to buy life insurance is while you’re young and healthy—while rates are still cheap for you. Of course, your premium will increase as you get older, but by purchasing now you can lock in low premium rates for the duration of your policy. You can also buy later, when you have a family and/or more responsibilities.

14. Can life insurance be collected if the insured committed suicide?
The policy becomes null if the insured commits suicide within a specified time period after the policy was purchased, usually 2 years. So, no, insurance companies won’t pay you if the insured commits suicide within 2 years after the policy was purchased.
Last Updated on Sunday, 26 December 2010 20:12