Life Insurance Insights

You applied for life insurance, had a medical exam and your agent says you have been declined.  Now what do you do?  First, ask the agent why you have been declined.  Is it due to a medical condition or life style?  If it’s a medical condition that you were not aware of, then ask the insurance company to send their findings either to you or your doctor and seek medical advice before taking any further action.  Often a declination for medical reasons is not due to a life threatening condition, but to your not having followed through with treatment or diagnostics recommended by your doctor.  The underwriter cannot be certain of the severity of a condition until they determine that correct care is being followed. More…

When you apply for a life insurance policy the insurance company has you take a medical exam.  Providing blood and urine samples is included.  These bodily fluids are sent to independent medical laboratories for analysis that provides the insurance companies with a great deal of information used in determining the correct premium to be charged.

Many years ago, only urine samples were submitted.  Then, with the advent of AIDS, blood testing was added.  The result has been much lower premiums for those who are in good health and more accurate premiums for those whose lab results indicate a reason for concern. Here are some of the potential indicators that are of interest to insurance companies: More…

Well, it’s not really a secret, but there are a couple of ways that life insurance companies improve their bottom line…and they do it at the expense of policyholders.  That sounds bad, but not really as long as you know how to avoid unintentionally contributing to their coffers.

All life insurance companies price their policies so that the premiums collected, plus the interest they earn exceeds their total claims and cost of doing business.  But, company profits are enhanced by policyholders who do not die and do not keep their policies in force to the end of the duration for which they originally planned.

If you purchase a 20 year term policy, keep it through the 20^th year and then discontinue it, the insurance company should have made a profit taking into account those that died during the 20 years.  But they will make much more profit from those 20 year term policies that were dropped by the insured between the 8^th and 12^th years. More…

Don’t get me wrong; permanent life insurance can be a very important part of an individual’s financial plan.  I own permanent life insurance.  With that said, the most costly mistake people make when it comes to buying life insurance is to buy permanent life insurance prematurely.  If you are young and in your early years of building a career and taking on responsibilities, committing yourself to a substantial premium for permanent life insurance may be premature.

When you buy term insurance the premium charged is only for the risk being assumed by the insurance company.  If you drop the policy, it’s similar to dropping your car insurance; nothing is lost.  Oh yes, longer duration term overcharges in the early years to allow for a level premium that undercharges in the later years.  But, that is nothing compared to the early overcharge in a policy that not only levels the premium over your lifetime, but also builds cash value.  Cash accumulation in permanent policies may look attractive, but unless you keep paying your premium every year for at least 15 years you might take a big hit! More…

It’s good to always be right.  And it’s also good to be king.  But neither of these usually befalls us.  So, it’s time for me to admit that I may have erred in at least one concept I suggested.  In the more than 100,000 words I have put forth about life insurance in this blog, I recall I may have suggested that you could reduce the face amount of a term insurance policy anytime after it was issued.  For example, buy a $500,000 20 year term policy and if after 10 years you decided  you only wanted to continue with $250,000 of coverage, simply ask the insurance company to reduce your policy and premium.  That seems like an easy request.  After all, the insurance company is not being asked to assume more risk; they will have less at risk.

But, that request won’t always be honored.  The right to reduce the face amount of a policy is not contractual; so if such a reduction is allowed it is only by company practice.  When I surveyed 20 insurance companies noted for their competitive term premiums, here’s what I found to be their practices: More…

In my last entry I discussed some situations that might call for the replacement of a permanent life insurance policy.  Replacement of an existing life insurance policy might make sense, but might it instead be repaired?  There are some repairs to be considered before replacing.  Look at making the following policy changes to your current policy to be sure that your premium is being used to its full advantage:

Note:  Do not reduce the amount of any death benefit or make any changes to your current policy until you are certain you have qualified for the new policy being considered.

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This is my second entry on the topic of Permanent Life Insurance policies that end up being less than permanent. First I discussed what can go wrong with Universal Life (UL); now I’ll deal with Whole Life (WL).

 Whole life insurance policies are intended to provide a level premium—either for life or for a stipulated number of years—with a guaranteed death benefit forever.  How could a policy like this go wrong?  Here are a few scenarios that could create a problem:

• Unlike UL a WL policy has a stated premium that must be paid.  In order to safeguard from the policy inadvertently lapsing when a premium is not paid, an “Automatic Premium Loan (APL)” provision might be added.  When the premium is not paid within the grace period, an APL provision will trigger a policy loan sufficient to pay the premium.  More…

You purchased a life insurance policy that you thought was permanent, but now it turns out that it is not…at least not unless you start paying a lot more premium than you had planned.  You probably purchased either a Universal Life (UL) or Whole Life (WL) Policy that is now threatening to implode.  Let’s deal with each of these policy types:  what went wrong and what can you do about it now.

The Imploding Universal Life policy.

Your Universal Life Policy was supposed to provide you with a level premium—or even vanishing premium—that would guarantee your death benefit forever.  Now the insurance company is telling you that any cash value it once had is gone and unless you pay a much higher premium—likely to increase each year—the policy will lapse.  What went wrong?  Most likely it was one, or both of these occurrences: More…

You’ve got it all figured out.  You’ve been reading my blogs and want the maximum amount of term insurance you can afford to protect your family.  You know that the longer the duration of the term, the higher the premium.  You also know that life insurance’s main goal is to replace income lost to your family if you die prematurely.  So, the longer you live, the less insurance you need.

With this knowledge, at age 35 and in perfect health, you set out to build the perfect life insurance program.  Your three kids range from age 7 to 12, so here’s how much life insurance you want to provide.  Here’s the amount you’ve decided on: More…

Two years ago you bought a $200,000 ten year term policy.  Now, there is another child on the way so you want to increase your coverage by $150,000 to a total of $350,000.  Your agent tells you you’ll have to apply for a new policy rather than just increasing your current policy.  Why is that, you ask?

The main reason you can’t just add another $150,000 of coverage to your existing policy is because this new coverage will have a new contestable and suicide exclusion clause that won’t apply to the original $200,000. Additionally, your agent tells you to drop the current $200,000 policy and take out a single policy for $350,000.  Does that make sense?  Yes, it does.

You were age 33 when you bought the $200,000 policy for which you are paying an annual premium of $112.  Now, at age 35, assuming you qualify for the same premium class (only at increased age rates), a $150,000 ten year term policy will cost $104 per year.  Add that to the $112 and your total annual premium for the $350,000 will be $216.  However, if you instead apply for a new $350,000 policy and drop the original $200,000 policy, your annual premium at age 35 will be only $144.  That’s a savings of $72 per year, or 33.33%. More…