23 August 2013 0 Comments

Life Insurance – Myths Revealed

myths VS factsMYTH:  Don’t apply for life insurance if you think you have a medical problem because if you are turned down by one company you’ll have a hard time getting a policy from another company.

FACT:  If you are declined coverage, or offered a policy that is rated up in price by one insurance company due to a medical condition, that will not affect your ability to get insurance from another company.  The underlying condition for which you were rated or declined will be taken into account, but one company will not be swayed by the action taken by another company.

MYTH:  Life insurance doesn’t pay off if death is due to a suicide.

FACT:  A regular life insurance policy will pay a death benefit in the event of suicide after the policy has passed the “Contestability and Suicide Exclusion Period.”  This period is usually two years after the policy was issued, during which time only the premium paid will be refunded in the event of suicide.  After that time, suicide is covered as any other death.  If you convert a term policy to a permanent policy under the guaranteed conversion rights of the policy, there is no new suicide exclusion period on the converted policy.  Accidental Death Benefits do not pay in the case of suicide since self-inflicted injuries are excluded.

MYTH:  Life insurance won’t pay off for death of a soldier in a combat zone.

FACT:  Life insurance policies being issued today do not exclude coverage for any military service or act of war.  It is common, however, for Accidental Death Benefit riders or policies to carry such an exclusion.

MYTH:  Since the courts won’t allow a life insurance death benefit to be paid to minors you should name an adult relative as the beneficiary rather than minor children.

FACT:  Actually, part of this statement is not myth.  If minor children have been named as beneficiaries and there is not a trust in place or documentation naming a legal guardian, the courts could hold up the payment of a death claim.  However, do not name any adult as beneficiary and merely assume that the money will be channeled to the kids.  It is best to name a trust as beneficiary that is already in place.  If no such document exists, then at the very least the beneficiary designation should be “(Relative’s name) Trustee for the benefit of (Names of minor children).”

Next…Why our private life insurance system works…and why it doesn’t.

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