Part 2 - Jump Menu

Who receives benefits and how much? Does it matter how I die? Will my beneficiaries receive the benefit in one lump sum, or      will it be distributed over a period of years? Who can be beneficiary and how often can that change? Are there different types of life insurance I should consider? Do I have to die to collect life insurance? Will I ever need to requalify to keep my life insurance policy, as      long as my premiums are paid on time? How do they set a price for life insurance? Which life insurance is less expensive—permanent or term?     Also See Part 1/Introduction - General - Health and Life; what is Life Insurance; How much life insurance should I have. Part 3 - Understanding Term Life versus permanent; How much will the cash be worth if I need to cash the policy; Major purpose of health insurance, major types of individual policies; Individual versus group insurance at work; Major Medical Health Insurance; How does deductible work Part 4 - In a health policy - understanding and definitions for coinsurance, disability income policy, disability, PPO and HMO; how can one collect under a disability income policy and how long must I be disabled before my disability benefits begin; purpose of PPOs and HMOs; choosing any doctor or hospital

Who will receive money if I die? How much?

Upon death of the insured, the insurance company pays the policy’s benefit amount to the beneficiary (or beneficiaries) named by the insured on the policy. Some policies may provide additional benefits, so be sure to discuss this with us, your Trusted Choice^SM Agent.

Does it matter how I die as to how much my beneficiaries will collect?

During the first two years of the policy period, there may be conditions (fraud, misstatement of age, suicide) that can affect the death benefit paid by the policy. As your Trusted Choice^SM Agent, we can discuss these with you. After two years, the full policy death benefit is payable, regardless of the cause of death. (Some policies may also pay extra benefits in certain conditions, such as the insured dies in an accident.)

Will my beneficiaries receive the benefit in one lump sum, or will it be distributed over a period of years?

That is entirely up to you, or you can leave the decision to your beneficiaries. Both options are available.

Who can I name as my beneficiaries? How often can I change them?

Your choice of beneficiaries is entirely yours. You can name individuals, organizations or your estate. You can also change them at any time. The original beneficiaries under your policy, as well as any changes you later make, must be designated in writing to the insurance company, and attached to your policy by endorsement.

Are there different types of life insurance I should consider?

Although there are many types of life insurance policies, nearly all are variations of two basic types—term and permanent. (A third type, known as “universal” life, is a combination of term, permanent and various investment options. Its complexity is beyond the scope of our overview, but if you are interested, we as your Trusted Choice^SM Agent can discuss if universal is a good fit for your life insurance needs and goals.)

Term insurance is exclusively death coverage. The policies are written for a specific length of time (the “term” referred to in the name). Common terms are one year, five year and ten year, although longer terms may be available. If the insured dies during the term of the policy, the death benefit is paid to the beneficiaries. If at the end of the term the insured is still alive, the coverage ends.

Unlike term insurance, a “permanent” insurance policy (often referred to as “whole life”) never terminates as long as the premiums are paid. It also builds cash values in the policy that can provide valuable “living” benefits in addition to the death benefit.

Do I have to die to collect life insurance?

For term insurance, the answer is always “yes”. For permanent insurance, as the “living” benefits accumulate, they may be used to provide funds for financial needs such as loans, premium payments and retirement benefits.

Will I ever need to requalify to keep my life insurance policy, as long as my premiums are paid on time?

For permanent insurance, no. For term insurance, if an insured wishes to continue the coverage beyond the specified term, many policies (known as “renewable term”) allow the insured to continue the coverage for another term of the same length, without any need to fill out a new application or undergo an underwriting review. This is a valuable provision, since the insured’s health or occupational status may have changed during the policy period in ways that would render them uninsurable if they were to try and purchase a new policy.

How do they set a price for life insurance?

Although there may be a myriad of fees, expenses, interest assumptions, and other factors used to develop a given life insurance company’s premiums for a policy, the rates for life insurance are ultimately based upon one factor—the statistical chances of the insured dying in a given year. Such statistics, based upon insurance company experience and government records, are used to calculate an annual “death cost” for each $1,000 of life insurance benefit.

Since statistically few people will die at younger ages, the death cost for those years will be extremely low. As people age, the statistical chance of death increases—slowly at first, then more rapidly after the insured passes middle age—and therefore so does the annual death cost.

Which life insurance is less expensive—permanent or term?

Since term insurance only provides a benefit if the insured dies during the policy term, its premiums will be the closest to pure death cost. This is why term is the least expensive coverage to buy at younger ages. At older ages, however, the cost of a term policy rises rapidly along with the increasing death cost, and may soon become prohibitive for many senior citizens. A term insurance policy’s premium will remain the same during the term, and then increase at each renewal. For example, an annual renewable term policy is written for one year at a time, so the premium will generally increase each year. A five-year renewable term policy’s premium will remain level for the five-year term, and then increase at the renewal. Once renewed, the policy premium remains level until the next renewal, and so on until the renewal provision expires (typically at age 65), or when the insured either decides the premium has risen too high or the insurance is no longer wanted.

Permanent insurance rates are also fixed for the policy term. However, since the policy is permanent, this fixed premium must represent an average death cost over the entire expected life of the insured. The result is that permanent policy rates will be often be significantly higher than term rates at the younger ages, but then significantly lower at older ages.
 

This is part 1 to multiple sections of an
article on Life and Health Insurance that
we will be presenting over the next few months.
Bookmark us for remaining sections and additional articles.

Introduction / Part 1

Part 3

Date Posted to Site:   Mar. 2005

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