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What is life insurance for?
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Does
everybody need life insurance? |
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How
much life insurance should I get? |
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What
is the difference between "term" and "whole" life
insurance? |
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What features should I look for in a life insurance policy? |
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Can I challenge a beneficiary? |
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If I am a beneficiary, do I have to pay income taxes
on a death benefit? |
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If my application for life insurance is rejected due
to poor health, are there any other companies
that will insure me? |
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How quickly do insurance companies usually settle life
insurance claims? |
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What is funeral, burial or final expense, insurance?
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Are there any consequences for lying on your life insurance
application? |
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| What
is life insurance for? |
Life insurance can provide a valuable financial benefit, especially
for those with dependents to support. It is an effective way to
guarantee that your loved ones will be financially secure should
you die.
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| Does
everybody need life insurance? |
The
answer depends on your age and circumstances. If you have dependents,
then life insurance is often the only feasible way to provide
financial security in the event that you should die. The question
of how much insurance you would need depends on your family's
requirements. On the other hand, children have little need for
life insurance, although parents sometimes buy policies in their
name as a savings vehicle. Young singles have little need for
life insurance, except perhaps to cover funeral expenses and any
debts not insured elsewhere. Mortgages and car loans, for example,
can be purchased with their own insurance protection.
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| How
much life insurance should I get? |
In order to calculate how much insurance you should get, first
you should add up your family's expenses, deducting any income
they would receive from pensions, survivor benefits, or from their
own employment. A good rule of thumb is to multiply their annual
income needs by ten to arrive at the coverage you require. If
you are buying insurance for a specific purpose, such as to insure
a debt or provide for a pre-planned funeral, then the specific
objective should determine the amount of insurance.
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| What's
the difference between "term" and "whole" life
insurance? |
Almost all life insurance falls into main categories - term or
permanent (sometimes called "whole life" insurance).
Both require premiums and both pay the face amount upon the death
of the insured. But they have some distinct differences. The primary
difference is that "term" insurance is generally less
expensive in the first several years of coverage, but then becomes
more expensive as you get older.
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| What
features should I look for in a life insurance policy? |
When
you are shopping for life insurance, you should compare not just
premiums, but the details of the contract. Bells and whistles
can alter the value of coverage substantially, even though policies
may look and sound the same on the surface.
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| Can
I challenge a beneficiary? |
It is difficult, but not impossible to change a beneficiary after
the death of the insured. But going through a dispute can be a
lengthy, and costly process.
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| If
I am a beneficiary, do I have to pay income taxes on a death benefit? |
No. Death benefits from life insurance policies are free of income
tax. However, the death benefit maybe subject to estate and inheritance
tax. It is best to consult your tax advisor for advice on your
particular situation.
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| If
my application for life insurance is rejected due to poor health,
are there any other companies that will insure me? |
Yes, there are insurance companies that specialize in high-risk
applicants, although the premiums for these polices can be expensive.
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| How
quickly do insurance companies usually settle life insurance claims? |
Once an insurance company receives a death certificate, proving
the demise of the insured, the beneficiary usually receives a
death benefit within one week. However, if an insured dies within
two years of buying a policy, and the insurer conducts a follow-up
investigation to see if the insured lied on the application, it
could take 30 to 45 days before a death benefit is paid. Most
life insurance policies have an insurer that can refuse to pay
the death benefit if it finds that the insured lied on his or
her application. For example, if an insured dies of lung cancer
within two years of buying the policy, and the customer wrote
on the application that he or she did not smoke, the insurer may
have grounds to deny the claim.
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| What
is funeral, burial or final expense, insurance? |
Funeral insurance, also known as burial or final expense insurance,
is life insurance you buy to pay for your final expenses. Final
expenses can include the cost of a funeral service, merchandise
and expenses related to the funeral such as transportation, lodging
for relatives, and other similar costs.
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| Are
there any consequences for lying on your life insurance application? |
Most life insurance policies have a two-year incontestability
period that allows a life insurance company to deny a death claim
if it discovers that a policyholder lied about a medical condition
on his or her application. If the policyholder dies from the medical
condition within two years of buying the policy, the life insurer
has the right to deny the claim. For example, let's say you were
a smoker but you did not disclose it on your application. If you
died from lung cancer within two years of buying the policy, the
insurer would have grounds to reject your claim.
However, if a policyholder dies after the two-year incontestability
period, the insurer could still pay a death claim equal to the
amount of life insurance you would have purchased if you had disclosed
your medical condition. For example, let's say you paid $500 a
year for a $100,000 policy, and you died from lung cancer five
years after you applied for coverage. The insurance company may
pay your beneficiary a death benefit less that $100,000 because
you were not paying the smoker rate.
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