Life Insurance

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From assistance with daily activities to medical support, long-term care insurance is designed to provide financial protection when you face chronic illness, disability or cognitive impairment. However, pre-existing conditions, advanced age, health issues and disabilities can disqualify you from getting coverage. Here are the ins and outs of long-term care insurance, a list of health conditions that insurance companies deem uninsurable and alternative solutions to help you get the care you need on a modest budget. You may want to talk to a financial advisor to get specific advice for your situation.

What Is Long-Term Care Coverage?

Long-term care insurance provides coverage for the costs associated with long-term care services. Specifically, it helps individuals pay for assistance with activities of daily living (ADLs) or medical services needed due to a chronic illness, disability or cognitive impairment.

Long-term care services support various activities, such as bathing, dressing, eating, toileting and movement. It can also cover services nurses, therapists and home health aides provide. Some policies may even cover care in nursing homes, assisted living facilities or adult day care centers.

In addition, this insurance aims to help individuals protect their assets and savings from being depleted by the high costs of long-term care. These costs can be substantial and standard health insurance doesn’t cover them. Likewise, Medicare and Medicaid don’t cover these expenses except under specific circumstances and eligibility criteria.

When an individual has long-term care insurance, they pay regular premiums to the insurance company. If they require long-term care services in the future, the insurance policy can provide benefits to cover a portion of the costs up to the policy’s coverage limits. The specific benefits and coverage provided by long-term care insurance policies can vary, so reviewing and understanding the terms and conditions before purchasing a policy is essential.

It’s worth noting that long-term care insurance is generally more expensive and harder to obtain as you get older or have pre-existing health conditions. Therefore, it’s advisable to consider purchasing long-term care insurance earlier in life when premiums are more affordable and eligibility requirements are more flexible.

What Disqualifies You From Long-Term Care Insurance?

Insurance companies consider certain factors disqualifying or exclusionary when you apply for long-term care insurance. These factors can vary between providers, but here are common reasons that may result in disqualification from long-term care insurance:

  1. Pre-existing conditions: Insurance companies often review an applicant’s medical history to assess their risk. For example, if you have certain pre-existing conditions, such as Alzheimer’s disease, Parkinson’s disease or certain forms of cancer, the insurer may decline or exclude coverage for those conditions.
  2. Age: Some insurance companies have age restrictions and may not offer coverage to individuals beyond a certain age, typically around 80 or 85. The cost of premiums also tends to increase as you get older. Conversely, you can’t be younger than 18 when purchasing coverage.
  3. Existing disabilities or impairments: If you already have a disability or impairment that requires long-term care, insurance companies may consider it a high-risk factor and decline coverage.
  4. Cognitive impairments: Severe conditions like dementia may disqualify an individual from obtaining long-term care insurance. Insurers assess the risk associated with cognitive decline and may exclude coverage for related care needs.
  5. Terminal illness: Individuals with a terminal illness may not be eligible for long-term care insurance, as the policy aims to cover long-term care needs rather than end-of-life care.
  6. Recent hospitalizations or surgeries: Insurance companies may impose waiting periods or exclude coverage for pre-existing conditions if an applicant has recently been hospitalized or undergone a significant surgery.
  7. Substance abuse or mental health disorders: Some insurers may decline coverage or exclude certain conditions related to substance abuse or specific mental health disorders.
  8. Declining health: If an applicant’s health is already in decline, insurance companies may deny coverage or charge higher premiums to account for the increased risk.
  9. Criminal history: If crimes appear on your personal record, insurance companies might refuse to provide coverage, particularly if you have any felonies in your past.

Remember, not all insurance providers have the same criteria and the availability of long-term care insurance and the specific conditions they cover can vary. Therefore, when considering long-term care insurance, it’s recommended to consult with multiple insurance companies, carefully review the policy terms and conditions and seek advice from an insurance professional or financial planner specializing in long-term care planning.

Examples of Uninsurable Health Conditions

Because each insurance company has underwriting guidelines and practices, the specific list of uninsurable conditions can vary between providers. That said, here are some health conditions that insurance providers typically perceive as high-risk:

  • AIDS/HIV
  • Alzheimer’s Disease, dementia and other forms of cognitive issues
  • Ankylosing spondylitis
  • Amyotrophic Lateral Sclerosis
  • Bipolar Disorder or other depression with the use of antipsychotic medications
  • Cardiomyopathy
  • Cerebral Atrophy (Paralysis)
  • Cerebral Palsy
  • Cirrhosis of the Liver
  • Confusion
  • Current Cancer and Metastatic Cancer
  • Cushing’s Syndrome
  • Cystic Fibrosis
  • Huntington’s Disease
  • Kidney Disease requiring dialysis
  • Multiple Sclerosis
  • Muscular Dystrophy
  • Myasthenia Gravis
  • Parkinson’s Disease
  • Schizophrenia
  • Scleroderma
  • Spinal Cord Injury
  • Significant Stroke/Cerebral Vascular Accident (CVA)
  • Systemic Lupus

In addition, if you require help with activities of daily living or live in a care facility, companies will likely consider your conditions uninsurable. Likewise, if you use a wheelchair, walker, cane, stairlift or hospital bed, you may be ineligible. Furthermore, oxygen therapy also disqualifies you from coverage in most situations, as do disability benefits, with the possible exception of military benefits.

Remember, this list is not exhaustive and the availability of coverage for these conditions can vary between insurance providers. Insurance companies may also consider factors such as the severity and stability of the condition, the age of the applicant and other individual circumstances when assessing insurability.

Long-Term Care Health Qualifications

Typically, individuals aged 65 and above are eligible for long-term care insurance, even if they have a notable health condition. Nonetheless, eligibility depends on specific criteria each insurance company sets. For instance, certain companies may mandate a specific level of net worth or income to qualify, while others focus on your medical conditions and history.

In other words, your eligibility for long-term care insurance rests with the insurance company. Therefore, it’s crucial to research the criteria of long-term insurance providers to identify the one that aligns with your circumstances.

How to Pay For Long-Term Care without Long-Term Care Coverage

When shopping around for long-term care coverage, you might have disqualifying health conditions or discover that the insurance premiums aren’t realistic for your budget. If so, you can pay for long-term care through other means, such as:

  • Self-Funding: If long-term care insurance is not feasible, you can adopt a simple approach of living on a reduced budget to save and invest more. It’s an excellent idea to set aside money regularly for investment purposes, whether through a 401(k), an IRA or a non-retirement investment account.
  • Group Plan Coverage: If your employer offers long-term care insurance as a benefit, you may be eligible for enrollment regardless of your health history. Taking advantage of such coverage is advisable if you have a chronic condition, as it may allow you to continue it even after leaving the employer.
  • Long-Term Care Annuity: Consider investing in a long-term care annuity, where you make a lump sum payment and receive a consistent, specified income for the rest of your life. Long-term care annuities often include provisions to assist with long-term care expenses.
  • Hybrid Life Insurance/Long-term Care Policy: Some life insurance policies come with a long-term care rider, making it easier for individuals with chronic conditions to qualify for coverage. These policies combine life insurance benefits with the option for long-term care coverage.
  • Short-Term Care Policy: Instead of a long-term care policy that provides coverage for multiple years, you can choose among short-term care policies offering coverage for a year or less. While the benefits may not be as extensive as traditional long-term care insurance, having some coverage is better than none.
  • Medicaid: Individuals with limited income and countable assets below certain thresholds may be eligible for long-term care services covered by Medicaid, a government program.
  • Life Insurance Policy Settlement: If you currently hold a life insurance policy, pursuing a long-term care life settlement is possible. To do so, you can sell the policy and use the proceeds to cover long-term care expenses.

The Bottom Line

Long-term care insurance covers the costs associated with long-term care services, assisting individuals with activities of daily living (ADLs) and medical services related to chronic illness, disability or cognitive impairment. It aims to protect assets and savings from the high expenses of long-term care, which are often not covered by standard health insurance, Medicare or Medicaid. Therefore, researching and evaluating options is essential to find the most suitable approach for individual circumstances.

Tips for Qualifying for Long-term Care Insurance

  • Long-term care looks different for everyone because of the endless combinations of health conditions and financial circumstances. As a result, there’s no simple answer for how to navigate long-term care and financial management in retirement. Fortunately, an experienced financial advisor can help establish a sustainable plan for your golden years. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • As with many aspects of retirement, timing is crucial for long-term care insurance. If you’re unsure how your timeline matches your long-term care situation, here’s how to know when to apply for long-term care insurance.

Photo credit: ©iStock.com/gustavofrazao, ©iStock.com/kazuma seki, ©iStock.com/yellowpicturestudio

Ashley Kilroy
Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.

Source: smartasset.com

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While there are a few different types of life insurance policies available, they fit into one of two umbrellas: term life and permanent life. Term life insurance is almost always cheaper than permanent life, as it provides coverage for a pre-established amount of time and lacks a cash value component. However, term life policies can be fitting for a variety of circumstances if the death benefit is only needed for a set number of years. Knowing how term policies work can empower you to make an informed decision when shopping for new coverage. Bankrate’s insurance editorial team breaks down term life insurance to help you better understand if this policy type is right for you.

Key takeaways

  • Term life insurance only stays in effect for a predetermined number of years —usually between 10 and 30 years — unlike permanent life policies.
  • Term policies are around three times cheaper than permanent life insurance, on average, because the chance of a payout on behalf of the policyholder is less likely.
  • 99 percent of all term policies never pay a death benefit, because most term policyholders stop paying their premium, causing their policy to lapse.
  • If you want to see a return on payments towards a term life insurance policy, you may want to look into conversion riders or return-of-premium riders.

What is term life insurance?

Term life insurance is a type of life insurance policy that lasts for a predetermined number of years rather than your entire life. When purchasing a term life policy, you’ll choose a policy term, most commonly between 10 and 30 years.

To help understand how term life insurance works, imagine you purchase a 10-year term life insurance policy. During that decade, you would pay your monthly or annual premium on time. If you were to pass away within that 10-year period, your beneficiaries would receive the policy’s death benefit.

If the insured does not pass away within the policy term and the coverage expires, the policy would end and the beneficiaries would not receive a death benefit when the insured passes away. However, there are exceptions to this scenario. Many of the best life insurance companies offer specialized riders, like conversion and return-of-premium riders, that tweak the way term life insurance policies work. If you are purchasing term life insurance, you may want to speak with your agent about what riders are available for your specific policy.

Typically cheaper than permanent life insurance No cash value component or investment potential to build wealth
Conversion and return-of-premium riders may add flexibility and peace of mind Only covers a specified time period
Gives families the ability to cover significant financial liabilities that will eventually expire after a set period of time, such as mortgages and tuition Sunk cost if you outlive the policy

Advantages of term life insurance policies

When choosing life insurance, it’s important to know how term and whole life insurance policies compare. Term life insurance has a couple of key advantages that make it an attractive option for those who need a larger death benefit for a specific period of time. It is typically the cheapest type of life insurance, especially for younger people or new parents. The larger death benefit at a reasonable price can provide for children dependents if something happens to the parent(s) earlier than anticipated.

Many financial planners encourage people who buy term life insurance to invest the money saved from not purchasing more expensive permanent life insurance. For policies with level premiums, the cost will not increase with age for the policy’s life as it does with some other life insurance options.

Learn more: Compare life insurance quotes

Disadvantages of term life insurance policies

Term life insurance does have a few limitations to keep in mind. For example, term life insurance policies pay out a death benefit when the insured passes away, but these policies do not include a cash value account. Whole life insurance policies, on the other hand, typically include a cash value account that may accumulate limited interest and capped returns. Some permanent life insurance policyholders use their cash value accounts to build wealth, but that option does not exist with a term life policy.

Another potential downside to having a term life insurance policy is that it only remains in effect for a certain period of time. Because policyholders can outlive their policies, there’s a chance that the death benefit will never be paid out. In fact, a study done by Penn State University indicates that 99 percent of all term policies never pay out a death benefit. However, that’s because most term policyholders don’t pay their premiums and let their policies lapse, not because they outlive the policy term, according to Entrepreneur.

Learn more: Best term life insurance companies

Types of term life insurance

There are several different term life insurance options, and some offer more guarantees than others. Usually, the more guarantees the policy offers, the more expensive the policy is. Here is a breakdown of the major types of term life insurance policies:

  • Level term insurance: Both the premiums and the death benefit remain constant over the policy’s life with this form of term coverage. Level term insurance usually lasts for anywhere from 10 to 30 years.
  • Decreasing term insurance: This type of term insurance, usually used to cover a shrinking debt such as a mortgage, is typically less expensive because the death benefit slowly decreases over time.
  • Guaranteed renewable term insurance: This type of term coverage allows the policyholder to renew the policy at the end of the term without having to undergo a medical exam or prove insurability again. It is generally more expensive overall, and it is important to note that the policy premiums will still increase with each successive term. A yearly renewable term is a form of guaranteed renewable term coverage.
  • Convertible term insurance: If you purchase a conversion rider and outlive your policy term, your coverage would turn into a permanent life insurance policy. Typically, you will not have to undergo another medical exam during policy conversion. Keep in mind that your premium or death benefit amount will change based on your age at the time of conversion. For example, if you wish to continue paying around the same premium, your death benefit would decrease, whereas you’d pay more to maintain around the same death benefit.
  • Return-of-premium term insurance: Some policyholders may be worried about signing up for a term policy, outliving their term and “wasting” the premiums they paid over the course of the policy term. This specialized rider provides a partial or full refund if you outlive the policy term. However, the rider will cost you extra during the policy term.

Riders for term life insurance

A standard term life insurance policy may not cover certain events such as critical illnesses, financial protection for your loved ones after you pass, and more. A rider, also referred to as an endorsement, is an optional type of life insurance coverage that can be added to your existing policy. It can be beneficial to add a rider to cover some of the gaps in coverage in a term life insurance policy. Here are three riders that are available for term life insurance:

  • Child term rider: This is only available for term life insurance policies. A child term rider provides coverage if your child passes away before a certain age and would pay out a death benefit. Additionally, this rider enables the term policy to be converted to a permanent policy without needing a medical exam.
  • Return of premium rider: For an additional fee, this rider ensures you receive back the money you paid into the policy if you don’t pass within the policy’s term. If the policyholder passes away before then, the money would be paid to the beneficiaries listed as normal.
  • Waiver of premium rider: If you become critically ill, injured or disabled and cannot go to work, a waiver of premium enables you to pause your monthly premium until you’re able to go back to work. However, qualifying scenarios are determined by the particular insurer. Additionally, with this rider you are typically only covered up to a certain age — usually your retirement age.

How much does term life insurance cost?

Term life insurance premiums are calculated based on the age and health of applicants. Because of this, pricing for a term life insurance policy varies but is typically significantly cheaper for younger applicants. Keep in mind that age and health are the main determinants of your premium, though you may still see some variance if you get quotes from multiple life insurers.

Comparing life insurance companies may be most helpful when you focus on what type of policy riders are available, how positive the customer satisfaction may be or what the insurer’s financial strength ratings are compared to other insurers.

Learn more: Affordable life insurance companies

Will I get my money back at the end of my term?

Unless you purchase a return-of-premium term life insurance policy, you will not get any money back at the end of the term. Paying premiums without receiving a death benefit is one of the potential disadvantages of purchasing term life insurance. A return-of-premium rider would increase the cost of your term life insurance, but would allow you to recoup a portion or all of your paid premiums. If you want to receive money back in the event that you outlive your policy term, you may want to discuss this option with your life insurance agent.

How much term life insurance do I need?

Deciding how much term life insurance you need hinges on your financial goals and specific situation. For instance, a parent of a young child may want to purchase a life insurance policy with a 15-year term. A term of this length could make the most sense as it could ensure that their child will be financially secure if the parent passes away while the policy is in place.

On the other hand, a childless couple with 10 years left on their mortgage may only want a term life insurance policy to be active while they are still paying off their home.

Some other factors to consider when determining your life insurance coverage needs include:

  • What is your yearly income and what are your expenses? How much room do you have in your budget for life insurance?
  • Are you the sole breadwinner? If not, does your spouse or partner make enough to cover your family’s current and future expenses if you aren’t there?
  • How many children do you have, and what are their ages? Do you plan to cover their higher education costs?
  • Are you a caretaker for any disabled family members?
  • Do you have a mortgage or other debts? If so, how many years will it take to be debt free?
  • How much financial help would your spouse need to keep your home afloat if you passed away?

It’s essential to consider your coverage needs to keep your life insurance premium within budget. If you carry too much coverage, you could find it challenging to keep up with your life insurance bill, putting yourself at risk of policy cancellation. If you don’t have enough coverage, your beneficiaries may struggle financially after your death. A life insurance calculator can help guide you on your life insurance shopping journey, as can a consultation with a certified financial planner.

Frequently asked questions

    • At the end of a term life insurance policy’s term, most plans will expire; however, policyholders may have the option to either renew the policy for a predetermined term of their choosing or convert the policy to a permanent plan, if they have elected these options at the onset of their policy. While letting the plan expire in most term policies means losing the money paid into premiums, some providers offer “return-of-premium” options that allow people to pay higher premiums in exchange for the option to have some or all premium payments returned if they outlive their term.

    • While it is possible to take out a life insurance policy on someone else, there are some stipulations. For instance, there must be insurable interest between the person purchasing the policy and the person being insured, such as business partners, spouses, parents or children. The person purchasing the policy must prove that the death of the insured person would have an adverse financial impact on them. Additionally, the insured person would also need to provide their consent, as you cannot take out a policy on someone without their knowledge or agreement.

    • Choosing a life insurance beneficiary is a personal choice. Many choose spouses, children, parents or a trust for the benefit of a family member to be their life insurance beneficiaries, but no rules dictate that these are your only options. Your life insurance beneficiary doesn’t have to be a person at all — you can choose to list a church or charity as your beneficiary if you wish. One of the most important things when selecting a life insurance beneficiary is remembering to do it. Forgetting to name a life insurance beneficiary can cause financial hardship for the person (or people) you thought would be collecting your death benefit.

Source: thesimpledollar.com

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Do you remember what it’s like being a kid with no financial responsibilities? Neither do I. It seems like we have been adulting forever. If life insurance isn’t quintessential adulthood, I don’t know what is. As you are reading and researching life insurance, one of the biggest questions you ask yourself is “Do I even need life insurance?”

Ask yourself this question: Does someone rely on me financially? If the answer is yes, then you likely need life insurance. Let’s discuss a few different types of people and their need for life insurance.

Single? You probably don’t need it.

If you are single and have no children, you probably don’t need life insurance. However, if you’re an ultra-planner or want to have a family sooner rather than later, locking in those low rates while you’re young and healthy can be a wise move.

Here are a few situations in which buying life insurance would be recommended even if you’re single:

  • Co-signed loans

Maybe your grandparents are co-signers on your private student loans or your parents co-signed on your mortgage. If you die before the balance is paid, the creditors can go after your co-signers. Life insurance can pay for these debts.

  • Caring for relatives

If you are caring for siblings or aging relatives you should consider life insurance to ensure that your loved ones are still provided for even if you are no longer around.

Have dependent children? You definitely need it.

Those with children have the greatest need for life insurance. Children rely on you for food, clothing, shelter, medicine, and everything else. If you die, life insurance can continue to fund these things, and it can also pay for hopes and dreams such as college tuition or a wedding.

Let’s take a closer look at specific parental situations:

  • Dual income families

If your household has two incomes contributing to standard of living, the sudden loss of a parent can cause financial upheaval if there is no life insurance to replace the lost income. One parent is now responsible to provide what two incomes previously did. For example, the proceeds from a life insurance policy can pay off the mortgage ensuring the children do not have to be uprooted from their home or school district.

  • Single parents

Let’s face it, the loss of a single parent to a child would be devastating. When married couples purchase life insurance, they often plan with the possibility that one spouse will remain to care for the children. Single parents do not have this luxury and absolutely need life insurance.

  • Stay-at-home parents

When you think of life insurance, you may only think a breadwinner needs coverage and not a stay-at-home parent – this could not be further from the truth. Imagine everything a stay-at-home parent does: babysits, cleans, cooks, transports, grocery shops… the list goes on. According to Salary.com, a stay-at-home mom is worth approximately $112,962. If the stay-at-home parent were to die unexpectedly, life insurance can pay for someone to help with these tasks.

Married? You most likely need it.

You don’t need to have children to rely on your significant other’s income. You’re building a life together and doing so requires money. You are likely both contributing to rent or a mortgage, car payments, utilities, and credit card bills. What happens if one of you were to die prematurely? The death benefit from a term life insurance policy can help pay for those expenses and cover the cost of a funeral.

It’s not uncommon today for couples to be in a committed relationship but postpone marriage. While it’s a little easier to own life insurance on your significant other if you are married, non-married couples can still purchase life insurance on one another as long as they can prove insurable interest.

Insurable interest is when a person can expect to suffer financial loss upon the death of another specific person. Having both names on a mortgage loan, both named on a lease, or owning a business together are just a few examples of how you can prove insurable interest.

The two types of life insurance

There are two main types of life insurance: term life insurance and permanent life insurance.

Term insurance:

  • Basic, inexpensive life insurance
  • Temporary – lasts a certain length of time (typically 10, 20, or 30 years)
  • Ideal for most people

Permanent insurance:

  •  Lasts a lifetime
  • Accumulates cash value
  • Much more costly than term insurance
  • Not necessary for most people

For most individuals, term life insurance is suitable coverage. It is designed to last only during the years in which you have the greatest need for it. Permanent life insurance can be beneficial for more complicated situations such as managing wealth for large estates.

The key benefits

Buying life insurance means you hand over some of your hard earned dollars to an insurance company – so what do you get in return?

  • Your life insurance policy will provide significant funds to your loved ones when they need it most, allowing them to grieve without the added financial stress.
  • The death benefit is typically considerably greater than the premiums you paid.
  • The proceeds are generally safe from creditors. Even if you die with debt, creditors cannot go after the life insurance proceeds paid.
  • Life insurance proceeds are typically not taxed by the federal government.
  • Peace of mind in knowing your loved ones will be financially protected if you are taken from them too soon.

Natasha Cornelius is the content manager and editor for Quotacy. She has worked in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. A long-time Mint user, Natasha lives in Bozeman, Montana where she loves to garden, DIY anything she can, and explore beautiful Big Sky country. Connect with her on LinkedIn.

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Understanding your policy’s death benefit.

Q: How long does it take my beneficiaries to get my life insurance death benefit?

Once the death benefit claim form and a copy of the death certificate have been received by the carrier, beneficiaries typically receive the death benefit check in two weeks.

However, if the insured dies within the contest-ability period (which is typically two years) the death benefit may take longer because the life insurance company has the option to investigate the claim if they choose do to so.

Q: How do I know my beneficiaries will get paid the death benefit?

Life insurance companies are not in the business to rip people off.  As long as your policy is inforce at the time of your death (in other words, the premiums were paid up-to-date) your beneficiaries will receive the death benefit payout.  There are only a few exceptions to this, which we discuss in detail below.

Q: Are there any situations in which my life insurance policy won’t pay out?

There are three instances in which a life insurance company can choose to deny or reduce a term life insurance policy’s death benefit.

One: Contest-ability Period

Life insurance policies include what is called an Incontestability Clause.  This clause states that the life insurance company has a specific period of time (typically two years) to dispute the validity of the insured’s statements made on an application.  So, if you die within the contest-ability period, the life insurance company has the right to investigate the details of your medical history to ensure you did not misrepresent yourself on the application.

For example, stating that you did not smoke cigarettes when, in fact, you did up until the day you died.  In a situation like this, insurance companies have the right to withhold some of the death benefit from your beneficiaries or even deny the claim altogether.

Two: Suicide Clause

Another situation in which the life insurance company has the right to deny a death benefit is if the insured commits suicide within a certain period of time, again typically within two years.  In this situation, however, the life insurance company will return all premiums that have been paid to date to the family.

Three: Homicide

The last situation in which an insurance company may not pay a death benefit is if the insured was murdered.  If the insured was murdered, the life insurance company will typically call the police department involved and inquire as to whether or not the beneficiary of the policy is a suspect.

If the beneficiary is a suspect, the life insurance company will hold payment until the charges are dropped or the beneficiary is deemed not guilty of the crime.

Q: Will my term life insurance death benefit payout be taxed?

Term life insurance is the least complicated type of life insurance and in most cases your beneficiaries will not have to pay federal or state income taxes on the death benefit they receive.  Since the policy premiums are paid using after-tax dollars, Uncle Sam already got his cut.

There are two main exceptions to this rule:

  • Estate taxes
  • Gift taxes

If you own your own policy, the death benefit proceeds become part of your taxable estate.  If your estate exceeds the exclusion amount, which is over $5 million dollars, it can get taxed.  For most people, this isn’t an issue.

The second exception is what is known as “The Goodman Triangle.”  If the policy owner, insured, and beneficiary are three different people, the death benefit could count as a taxable gift to the beneficiary.

Q: How can I be sure my policy’s life insurance carrier will still be around when I die?

All major life insurance companies have financial strength ratings.  There are multiple agencies each with their own rating scales and standards that assess the long-term financial stability of these insurance companies.  These ratings typically follow the school-like A through F scale.  The higher the rating, the more stable the company is and the more likely the company will be able to pay future claims.

When you are looking to purchase life insurance, whatever means you are using to buy it through should tell you the insurance company’s rating.  Any company with an A rating or better is considered financially stable and you should not worry about any future claims not being paid out.

Natasha Cornelius is the content manager and editor for Quotacy.  She has worked in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014.  A long-time Mint user, Natasha lives in Bozeman, Montana where she loves to garden, DIY anything she can, and explore beautiful Big Sky country.  Connect with her on LinkedIn.

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If you want to buy term life insurance, you’ve got a few options. You could work with an agent in your area if you’d prefer a face-to-face interaction, or you can buy online if you prefer the convenience of an electronic process.

However, not all online life insurance agencies are created equal. If you’re shopping around for term life quotes, it’s important to understand what to look for to help you get the best value.

What to expect when you’re applying for coverage

Anyone who has gone through a life insurance application in the past could tell you that life insurance carriers are some of the most thorough and careful companies in the world. This is because life insurance policies are priced based on the applicant’s risk of death.

However, the process of applying has come a long way, and it’s actually gotten pretty simple – especially online. Nowadays, most of the heavy lifting is done behind the scenes.

If you add a good agency into the mix, applying for life insurance is practically painless, since it will handle almost everything that doesn’t require your signature or further clarification from you.

Generally, buying a life insurance policy will take between two and six weeks, and the process tends to follow a consistent format.

Step 1: Submit an application

When you find a price you like, you can choose a carrier to submit a formal application with. Choosing a carrier to apply with isn’t a binding decision, and you’re always free to back out of an application to go a different direction.

Step 2: Take a medical exam

Life insurance carriers will require you to take a medical exam see how healthy you are. This is free for you and the examiner will even come to your home or office to make things convenient.

Step 3: Wait for your medical records

The carrier will order a copy of your medical records from your doctor, which could take anywhere between hours and weeks, depending on how well-organized your doctor keeps their records.

Step 4: Tie up loose ends

After the exam is completed, medical records have been received, and any other questions the carrier needs answered are out of the way, your application will be reviewed. Once you get the final OK from the carrier, your policy will be approved, and you’ll be on your way to getting coverage!

Let’s look at each of these steps in a little more detail.

Submitting your application

Starting your life insurance journey will often begin with getting a quote, which will show you prospective prices based on a few key factors, like the amount of coverage you’d need, how long you want it to last, and a few health and lifestyle questions.

Interested? Check out a few prices. Quotacy has an online quoting tool you can use – no commitment required.

Taking the medical exam

After applying for coverage, the life insurance carrier will require you to take a quick medical exam in order to be approved for coverage. Because life insurance pricing is based on your mortality risk, the carrier needs to verify your current medical situation.

The medical exam is a free mini-physical performed by an examiner and scheduled by the carrier. It can happen anywhere, even in your home or office, whenever you can spare half an hour.

  • Typical exams consist of:
  • A few questions about your medical history
  • A list of any medications you’re taking
  • Height and weight measurements
  • Pulse and blood pressure check
  • A urine sample
  • A blood sample

Preparing for your exam

The measurements that are taken during the exam are extremely important, and being prepared is your best bet to ensure a good outcome. In the time before your exam, you should remember to:

  • Fast for 6-8 hours – this will reduce your blood sugar. Scheduling your exam in the morning can make this easy if you skip breakfast.
  • Don’t smoke for at least one hour prior – smoking temporarily raises your blood pressure.
  • Don’t drink coffee for at least one hour prior – caffeine can increase your blood pressure and raise your pulse.
  • Avoid alcohol for 8 hours prior – it’s high in calories, and can raise your blood sugar and blood pressure.
  • Avoid overly salty and sugary foods for one day beforehand – both salt and sugar raise your blood pressure.
  • Drink lots of water – this hydrates you to help make the blood draw a lot easier and less painful.
  • No strenuous exercise the night before or the day of your exam – as your body repairs from exercise, your blood pressure and pulse rise slightly.
  • No sexual activity for one day beforehand (for men, at least) – gettin’ freaky lowers the PSA levels in your blood, which is one of the ways that carriers evaluate your prostate health.
  • Get a good night’s sleep – being well-rested lowers blood pressure. As an added bonus, if you’re afraid of needles, having a full eight hours can help your body negate the physical effects of your phobia.

Waiting for your medical records

Before your life insurance application is approved, insurance carriers order copies of your medical and driving records to help them get a better idea of any insurability risks you might have. Just like with the medical exam, the carrier orders these records behind the scenes on their own dime.

Because the laws protecting a patient’s medical records are extremely strict, you will need to sign a form authorizing your doctor to release your records to the insurance company and agency you’re working with.

At this point, all you’ll need to do is sit and wait for the records to arrive. Depending on how efficient your doctor is at sending them along, waiting for this step to be completed can either happen overnight or take a few weeks.

Answering additional questions

In addition to everything else that happens during your application, the carrier will sometimes have follow-up questions for you which will help them get to know you a bit better. These questions can be about anything from medical conditions to your hobbies to your travel plans.

A lot of the time, the questions a carrier asks can be pretty scary to someone trying to protect their family. Many clients see a questionnaire about their sleep apnea, or their diabetes, or their battle with cancer, and assume that the carrier will decline them on the spot.

It’s important to keep in mind that even though there are many factors that can affect your rate during this time, you’ll likely be able to get coverage. The whole reason that insurance carriers have flexible prices is because they want to offer coverage to as many people as possible, regardless of the circumstances.

Here’s a quick list of example questions you could see during an application, depending on your circumstances.

If you have a medical condition:

  • How severe is it?
  • How is it being treated?
  • Is the treatment effective?

If you have a risky hobby, like hang gliding or rock climbing:

  • What level of experience or certification do you have?
  • How often do you participate in your hobby?
  • How much time have you dedicated to your hobby?

This isn’t a comprehensive list, by any means, but hopefully it will give you an idea of what the carrier is looking for.

Waiting for approval

Once the carrier has everything they need, your application will enter the approval process. This is when the carrier’s underwriters will review everything they’ve collected as a whole, and evaluate where the final price of your insurance policy should be set.

If you’re approved for coverage, you’ll be sent a packet containing your policy itself as well as a few documents that you’ll need to sign and return so the carrier can finalize your coverage. This step is also when the carrier will collect your payment information so that they can set up your billing on their end.

Depending on the carrier you apply with, you will either be sent digital forms or a physical policy booklet. Regardless of the format, you should store your policy securely and have a plan in place to help your family find it in the event of your death, so they can claim your death benefit.

After a bit more processing by the carrier to wrap up any loose ends, you’ll receive a notification that your policy is inforce. That means that everything’s in place on the carrier’s end of things, and your coverage has been activated! All that’s left for you to do is make your premium payments according to your payment plan, and your family will be covered.

Eric Lindholm is a writer for Quotacy, and he’s personally guided hundreds of people through their own life insurance journeys since joining in 2016. Eric lives in the Twin Cities, Minnesota, where he’s busy paying off his student loans and making the most of his time as a 20-something. You can connect with him and see what he’s up to at EricLindholm.biz.

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Replacing your policy

I currently have a life insurance policy – could I get a better price elsewhere?

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The short answer is yes – it is possible to get a better price. The long answer is that it depends on quite a few factors, and there’s no guarantee that your price will drop with a second application.

One of the biggest things to keep in mind is your age. The older you are, the higher your chances of dying naturally, which will slowly increase the baseline price of a policy. Applying for a policy at 45 will be more expensive than applying at 35, all other things being equal.

When in doubt, work with a life insurance agency. They’ll be able to give you some insight into how much your price could drop if you switch to another carrier.

If my health has improved since I got my last policy, can I reapply for a better price?

Depending on how your health has improved and the amount of time that has passed since your previous application, you could see significant price drops.

For example, smoking is one of the priciest things that you can do with regard to a life insurance application, and typically, you need to have kicked the habit at least one year ago before life insurance carriers are willing to look past your tobacco history.

My last agent sold me a policy from the company he worked for. Can I get a better price if I shop around?

If your agent was captive, meaning they only represented one insurance company, the first thing that you should do is get a quote from an independent source that represents many. Because carriers jockey for position to undercut their competitors’ prices in certain situations, it’s possible that another carrier beats your current carrier in price.

Sometimes the difference in price will be pretty obvious from the get-go. If you can’t find a dramatic difference in price, it’s often wise to talk to an independent agent or online company and tell them the facts about your case. An experienced agency can help point you in the right direction by shopping your case around for preliminary price checks with various carriers.

Natasha Cornelius is the content manager and editor for Quotacy. She has worked in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. A long-time Mint user, Natasha lives in Bozeman, Montana where she loves to garden, DIY anything she can, and explore beautiful Big Sky country. Connect with her on LinkedIn.

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Reviewing your policy

How often should I review my policy?

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We suggest reviewing your life insurance policy once per year to make sure you have enough coverage.  Most importantly, you should review it anytime your life and circumstances change.

What should I look for during my policy review?

When reviewing your policy you should look for anything that may need updating. Examples include your name, address, phone number, billing information, and beneficiary.

When should I update my beneficiaries?

Make sure you keep your beneficiary designations up to date.  There are certain circumstances that will warrant a beneficiary change. These include:

  • Marriage or divorce
  • The birth or adoption of a child
  • Your designated beneficiary passes away
  • You are now caring for your elderly parents

When should I apply for a new policy for more coverage?

Just as life is ever changing, so are your life insurance needs.  You may have purchased a small insurance policy when you were fresh out of college to cover your student loans.  A few years have passed and now your lifestyle has changed.  Here are some common circumstances in which you may want to increase your life insurance coverage:

  • Starting (or adding to) your family
  • Purchasing a new home
  • Job promotion with higher income

Natasha Cornelius is the content manager and editor for Quotacy.  She has worked in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014.  A long-time Mint user, Natasha lives in Bozeman, Montana where she loves to garden, DIY anything she can, and explore beautiful Big Sky country.  Connect with her on LinkedIn.

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