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Life Insurance Tips
1. Life insurance can sometimes be offered through
an employer as a group plan. However, the insurance offered by an
employer generally has to be renewed annually by both the employer and
the employee. Group health plans also can include cash value, so an
employee would have the rate deducted from her paycheck, and the
premiums would build up over time; if the life insurance were ever
withdrawn, the beneficiary would receive the lump sum of the savings.
Some employers offer spilt life insurance policies where the employer
pays the entire premium of the insurance, but if an employee dies, the
benefits are split between the employer and the employee’s
beneficiaries.
2. In most cases, basic medical exams and medical history are required
by insurance companies before they sign a high-value policy with you.
Life insurance companies use your medical information to determine your
premium and the risk involved to insure you. However, an insurance
company that is insuring you with a low-value policy may not require
medical information. Most companies have a one- or two-year period where
they can raise your rates or cancel your insurance if they find that you
were dishonest in providing your medical information and you have hidden
medical problems.
3. When you take out a life insurance policy, you are required to name
beneficiaries. In some cases, you can name primary beneficiaries, and if
for some reason the life insurance cannot be given to them, then you can
name contingent beneficiaries. You can name multiple people as your
primary beneficiary, but in doing so, you have to assign percentages of
how much each beneficiary would receive in case the insurance policy was
actually withdrawn. Changing beneficiaries is quite simple; generally
you only have to fill out and sign a form designating the new
beneficiary in the presence of a witness.
4. Endowment policies are a variation of whole life policies. These
policies generally charge a higher premium that is then invested in a
fund. The policy itself is a cash-value fund. When you take out the
policy, you set a certain time period when the policy is in effect: ten,
twenty, or thirty years. After the set period of time, the policy is
paid out to the beneficiaries as the cash value built up over the
endowment period. Endowment policies can be used as a type of retirement
fund as they can be paid out to the insured if the insured is still
alive when the endowment policy matures.
5. Variable life insurance offers you more investing options and more
control over your investments. When you sign up for a variable policy,
you choose how your money is invested, and you choose a minimum death
benefit and cash value. Depending on how well your investments do, your
cash value can increase, and the interest earned off of your investments
can be reinvested in the premium, so the out-of-pocket premium payments
will decrease. However, if your investments do not do well, benefits
will decrease, but they will not go below the minimum amount specified
in your plan.
6. Variable universal life insurance policies have two parts: first,
these policies offer a basic insurance policy; and second, these
policies offer cash-value accounts where percentages of premiums can be
invested in a variety of investment vehicles on a tax-deferred basis.
Some policies allow you to withdraw or to borrow against your cash-value
accounts. These withdrawals are taxable and can be subject to some
penalties or fees, but they can be very useful during retirement.
Variable universal policies are flexible: they give you the coverage of
a normal life insurance policy but the freedom to choose and build up
investments.
7. When you sign a life insurance policy, make sure you know about the
contestable period. The contestable period is a one- or two-year time
period where the insurance company can cancel the policy if it discovers
that the medical information you provided was false or lacking. If an
insurance company cancels a policy, it generally will refund you the
premiums you have paid. Instead of canceling your policy during the
contestable period, companies can also adjust your rates for the
increased amount of risk you pose to the company. Most high-value
policies have contestable periods, where many small-value policies do
not.
8. When you are choosing a company, look at their ratings. There are
around three thousand life insurance companies in the United States. Of
those three thousand, the majority of them are able to make the payments
required by the insurance policy when the policy matures. If a company
is highly rated, it is more likely to make those payments than a company
that is rated lower. However, if you choose a company with a lower
rating that is not able to make the policy payments, federal insurance
regulators can step in and help you. But in the case of life insurance,
it is better to choose a company that has a higher rating and a higher
likelihood of honoring the policy.
9. Terminally ill patients with life insurance policies who do not have
a long life expectancy can sell their policies to viatical firms for a
cash amount that is less than the amount stated by the policy itself.
However, patients can use this cash immediately in either paying bills,
traveling, or meeting any other expenses. Once the patient dies, the
entire policy is paid out to the viatical firm, and the original
beneficiaries of the policy receive nothing. Patients with high expenses
should consider carefully the effect of selling their policy on their
beneficiaries (the financial stability of the beneficiaries) after the
patients die.
10. Most insurance companies offer several payment options to
beneficiaries. Beneficiaries can accept one lump sum of the policy’s
value upon the death of the insured. Or beneficiaries can receive a
stipulated monthly payment over a certain amount of time. Insurance
companies generally offer several monthly payment options as most
beneficiaries prefer monthly sums rather than a large up-front sum. |
