LIFE INSURANCE and ESTATE PLANNING
Questions and Answers
How much life insurance should I buy?
If you have a family, many experts recommend that you need an amount equal to 10 times your annual salary. However, these 'experts' won't be around to help out your family if they are wrong. Only YOU can determine what you would want your family to have. For this reason, and because life insurance (when purchased carefully) is extremely inexpensive, many people own larger amounts.
What financial criteria are used in selecting a safe insurance company?
There are a number of ways in which to evaluate the financial strength, performance, and integrity of a life insurance company. Third party services who measure insurance companies' financial strength, claims paying ability, and other financial categories include: Standard & Poor's, Moody's, Duff & Phelps, Weiss.
All of the above services assign "letter grades" to the various insurance companies. These letter grade ratings are not warranties of an insurer's current or future ability to meet its contractual obligation, but rather opinions based on the available facts about each company.
We can provide you with a financial profile, which includes the "ratings" from all of the above services, on every company we quote.
What is the difference between "standard," "preferred," and "preferred plus" rates, and how do I qualify for "preferred" or "preferred plus" rates?
Although the qualifications for "preferred" or "preferred plus" rates vary from company to company, generally you must be in excellent overall health. You must meet the insurer's strictest standards. There are limits on height, weight, cholesterol, blood pressure, and you must not have a history of any significant health impairments. You also cannot use tobacco in any form. You must have no history of drug or alcohol abuse, and you cannot engage in any hazardous activities. According to actuarial tables, these are the people who are likely to live the longest. Each company may have a different name for them, but these rates represent the lowest available rates.
However, you need to understand that, when comparing policies, even if you're in very good health, there is a good chance you won't qualify for these best rates. In fact, only 10% - 15% of all applicants get this "super-preferred" rate. Typically, about 60% can qualify for the regular "preferred" rate. The rest fall into the "standard" category, or worse. We believe that it's in your best interest to get the facts now, up-front, in order to minimize disappointment later. The specific criteria for these rates differ widely among the various insurance companies, and it is not uncommon for an individual to be classified as "standard" at one company and "preferred" at another.
"Standard" risks refer to persons who have had some minor health impairments in their lifetime. Examples of standard risks would include persons who have cholesterol levels of over 260, or who are 50 pounds overweight.
"Substandard" risks refer to persons who are having more than minor health problems. Companies charge them additional premiums depending on the risk factors involved.
The key is finding the right company. We constantly monitor each company's criteria so that we can assist you in finding a company that will have the best rates for YOU, based upon YOUR specific situation. We place many life insurance policies annually and, as a result, have the experience to know which insurance companies will likely be best for you.
This is one of the principal differences between many other seemingly similar services and us. We focus on the bigger picture. Sure, it requires a bit more work, and thought, to find the best available values - but our clients appreciate it.
What if I smoke cigarettes?
Rates for smokers are higher than for non-smokers. In order to qualify for non-smoker rates, most life insurance companies require that you be smoke-free for at least one year; some require longer periods. Through our extensive research of the market, we have found that certain insurance companies treat smokers much more favorably than others.
What about other tobacco use?
Believe it or not, most insurance companies treat all tobacco use including cigars, pipes and chewing tobacco in the same category as cigarettes. However, certain companies allow pipe, cigar, and chew to qualify as non-smokers. This one difference alone can save you as much as 50% on your premiums! We know which companies will do so, and will recommend only those companies when appropriate.
I need life insurance, but my health is poor. Can I still qualify?
If your health is poor or have been charged extra premiums or even declined for life insurance, you've come to the right place. Why? Many people in this category simply assume that coverage is either not available for them, or that it will cost too much. Perhaps you've applied somewhere else and been declined, or offered a policy with an outrageously high extra premium. After this happens once, or twice, perhaps you've been told that your case is too "difficult" to place.
Unless your agent understands the underwriting process for such specialized cases, the odds are against you finding the right offer. Many agents don't want to spend the extra time and effort it takes to find the best offer for an impaired risk case. The fact is, it's a lot of extra work. Most "quote services" focus their attention on quoting only the clean (perfectly healthy) cases. Unfortunately, the insurance companies with the best rates for healthy applicants are unlikely to be the companies you should be considering, if you have health considerations.
We can't promise to find coverage for you. However, we do have the experience to know which companies specialize in certain health impairments. Some clients may be offered "standard" rates by one company, yet extremely high "substandard" premiums from another. We know which companies are most likely to make you a reasonable offer. We can "shop" your condition with several of these companies, in order to find the best offer.
If you think you are a substandard or impaired risk, please indicate that on your E-Mail , and we will contact you with more details.
What about coverage on my spouse and/or children?
Most families have coverage on both spouses. There are many financial pressures on a family after the loss of either parent. Beyond the obvious final expenses, the financial strain on a family after the loss of a spouse can be significant, even if the deceased spouse wasn't working. Often the surviving spouse will take time off work, or change jobs in order to spend more time with the children.
Coverage for children is also available to cover final expenses and/or to guarantee insurability for the child's future.
Other than to cover final expenses, why would anyone want to buy insurance on a child, or grandchild?
There are several reasons.
First, if permanent insurance is purchased at a very young age, the insurance company will often guarantee the child the right to buy more insurance later in their life at regular intervals without providing any evidence of insurability. In other words, if you buy a little now, you are guaranteeing your child's right to buy a lot more later, without having to submit to an exam, and without having to answer any health questions. If the child later becomes ill, or uninsurable, these privileges could be the only means to obtain the coverage needed when the child becomes an adult.
If you, or anyone you know, have ever been declined for life insurance, or charged a higher "rated" premium as a result of a health condition, you will be able to appreciate the value of the privilege to purchase insurance, at standard rates, without any medical exams, and without having to answer any health questions!
Second, it's very, very cheap. Insurance premiums are significantly lower for children, than for adults. And, although you'll be paying for a longer period of time, the earlier you start a plan of permanent insurance, the lower the total of the payments will be over one's lifetime.
Third, most children are healthy. This type of insurance is generally easy to get, and doesn't usually require any medical exam.
Fourth, if permanent policies are started early, there is more time to build cash values, which can be used to help fund college expenses, or provide cash for other purposes, including retirement, or a down payment on a house, etc.
Most life insurance companies only sell permanent insurance on children. However, some companies do offer term life insurance for children. Many of these policies include a conversion privilege, which allows the insured to exchange the coverage for permanent insurance.
In summary, there are many compelling reasons to consider life insurance on children. For more details, or a custom illustration based on your specific situation and objectives, please E-Mail us and we will quickly respond to your request.
I'm considering replacing my existing life insurance. Are there any risks in doing so?
Yes. Be careful. Before replacing an existing contract, closely compare the two policies in the following categories:
Price
Guarantee periods
Convertibility
Financial strength of the insurance companies
Available riders, if applicable
Understand that a new contestable period starts (usually two years). You should also be aware that suicide is not covered under a new contract (usually two years).
Most importantly, DO NOT cancel any existing coverage until the new policy has been approved, paid for, and delivered to you. Before an existing policy is replaced, it should always be clearly determined that such a decision is in your best interest.
After the initial period of guaranteed premiums, what will my insurance cost?
Each product, if renewable, has a contractually guaranteed maximum renewal premium which can be illustrated, and which is shown in your policy. This amount is the most you'll have to pay to renew the coverage.
Most insurance companies also illustrate current renewal rates, which represent the expected future renewal rates, which are lower than the maximum renewal rates. These rates are not guaranteed, and can be higher or lower than expected, but never higher than the guaranteed maximum renewal premium discussed above.
After your initial guarantee period ends, you can re-apply for new coverage and, if you qualify, you can begin a new period of guaranteed rates (in effect, a new policy), which will generally cost less than your current or maximum renewal rates. This process is referred to as 're-entering,' or 're-entry.' Since your future good health is not guaranteed, the ability to 're-enter' is not guaranteed. And, although re-entry premiums are often attractive, to illustrate such 're-entry' rates without showing the current and maximum renewal rates, and in the absence of a complete explanation (as if to imply that they are the same as renewal premiums) is universally condemned as unethical and deceptive.
If you select a short-term policy with the expectation of using the re-entry feature down the road -- then fail to qualify for re-entry -- you'll face outrageous, unaffordable rates through the remaining years you'll need the coverage. You'll have only two choices: pay the increased cost or lose your coverage.
Will my policy ever be cancelled because of health reasons?
No. Your policy will never be cancelled because of a change in your health, and you will not be asked to provide evidence of good health in order to renew your policy each year. However, YOU have the right to cancel your policy at anytime.
What happens if I become disabled?
Most insurance companies offer a rider called "waiver of premium" which provides that in the event you become totally disabled for a period of six months or longer, the insurance company will pay your premium for you until you are no longer disabled. This rider is optional and available at an extra cost, and must be chosen at the time of your application. The rider is generally not available for purchase after age 55 (60 in some cases) and, even if elected, will automatically be removed from most policies at age 60 (65 is some cases). However, if your disability begins while the rider is part of the policy, most policies provide that premiums will be waived for as long as your disability lasts, even if that period lasts beyond the age in which the rider would have been removed.
How do I apply?
Generally, we handle the entire process right over the phone. Our service representatives will ask you the questions on the appropriate application form. Then, the completed forms are sent to you for review and signature. We even provide you with a pre-addressed, postage-paid return envelope. If you would like to meet with one of our Representatives, an appointment can be arranged for consultation of your coverage.
Does it cost me anything to apply?
No. The insurance company pays for all of the underwriting expenses. You are under no obligation. Your only commitment is your time to take the exam.
Do I need to send a check with the application?
If you remit the first premium along with your application, most insurance companies will provide limited temporary conditional coverage during the application/underwriting process. However, there is no requirement that you submit a check with your application. The premium can be paid once the policy has been approved.
Will I need a medical exam to qualify?
In most cases, an exam is required. If so, it will be done at the expense of the insurance company, at a time and place convenient for you -- usually right in your home. The exam is usually conducted by a licensed paramedic or medical doctor, and generally involves a blood test, urine specimen, blood pressure reading, height and weight measurement, sometimes an ECG, and a series of questions about your health history. The whole process takes about 20-30 minutes.
When does my coverage begin?
Although most companies provide some temporary conditional coverage during the application process (assuming the conditions are met), this temporary coverage is limited in time and amount. The availability, amount and conditions vary from company to company. If you are replacing existing coverage, you should never drop your existing coverage until your new policy has been approved, and your first premium has been paid.
Is there a money-back guarantee?
Yes. If, at any time during the application process, you change your mind for any reason whatsoever, you will receive a full refund, no questions asked. This guarantee continues until ten full days after your policy is delivered to you.
What kind of life insurance policy should I buy?
There are a number of different types of life insurance policies that you can buy. The following are some examples: term, whole life, universal life, variable life, and first to die / second to die. Before you can decide which type of policy best suits your needs, you need to decide on the following:
- How long do you want to keep coverage in force?
- What can you afford to spend on premiums?
- Do you want to accumulate additional funds on a tax-favored basis?
- What is you investment risk tolerance? (i.e., guaranteed benefits vs. variable benefits)
Once you have defined your objectives, you can make the right choice as to which type of policy best suits you needs.
Who should own my life insurance policy?
Proper ownership of a life insurance policy depends on the size of the life insurance policy and the size of ones estate. First of all, understand that the owner of a life insurance policy must have an insurable interest in the life of the insured. It is suggested that when ones estate value, including the face amount of the insurance, exceeds the unified credit amount given to each of us by our government, that we review with you the benefits of having an irrevocable life insurance trust created to own the polices. This strategy will keep the face amount of the insurance out of the estate for valuation purposes and prevent the life insurance from being subject to estate taxes. The unified credit is the amount of assets that we are able to pass to our heirs without being taxed.
What are the proper uses of life insurance?
There are many good uses for life insurance, which include the following:
- Replace the income stream of the deceased
- Pay off debts
- Pay funeral costs
- Provide for college education costs
- Provide funds for the transfer of a business
- Provide liquid funds to pay estate taxes
- Provide funds to guarantee a loan
- Provide a business with necessary funds to replace a key employee
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