Life Insurance Questions & Answers

May 22, 2007

Our insurance company sent us an advertisement listing several questions about life insurance. The spin was “don’t let unanswered questions keep you from getting the financial protection your family needs.” So I called them up to see how they answered the questions. My plan is to go back and do my own research on life insurance and see if what I find matches up with their answers.

1) Do I need a doctor’s physical before getting a life insurance policy?
Yes, some insurance companies will send someone to your home to perform the checkup at your convenience.

2) How do I know what amount of life insurance is right for me?
The insurance company looks at your assets, liabilities, and dependents and recommends how much insurance you need.

3) I’m young and healthy. Why should I buy life insurance?
The answer to this one was to plan ahead. Whether you qualify and how much you pay for life insurance depends on factors such as your health, age, occupation, and others. His argument was that 15 – 20 years from now you may find yourself in a much more expensive category or even uninsurable so you should lock in your insurance rates now.

4) I have a life insurance policy from my employer. Isn’t that enough?
He recommended against relying wholly on my employer for coverage. If a person wants coverage their company doesn’t offer, moves to a new job that doesn’t have the coverage they need, or wants to start their own company then having a separate life insurance policy would fill those gaps.

5) Wouldn’t I be better off investing the money I’d otherwise spend on insurance premiums?
He gave a pretty simple answer to this one. You could just put the money in the stock market but there is more risk using this approach. You could lose all your money in the stock market but the coverage provided by the life insurance policy is guaranteed.

6) Can children be named as beneficiaries of a life insurance policy?
Yes, but he stressed that it should be done through a will. The legal documents should appoint an executor to manage the money and a guardian to take care of the kids.

7) Why should I care if a company charges sales commission?
This one is pretty obvious but I asked it anyways because it was on the list. Sales commission will make your premiums higher. If you have a policy that builds value over time it will take longer to accumulate money

8) Should I buy life insurance on my children?
People do this for two reasons. The first is to help through a transitional stage in the horrible event you do lose a child. The second is to lock in life insurance at a low rate for your kids.

Of course the insurance agent ended by asking if I was ready to start the application process for a life insurance policy. I thanked him for his time and said I’d look into it. Now that I’ve heard the answers from the insurance company’s point of view my next step will be to go to an independent third party to research them farther. I’ll let you know what I find out. Do you disagree or find fault with any of their answers?

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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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8 Responses to Life Insurance Questions & Answers

  • Doug

    I am 52, in excellent health and a nonsmoker. I am 5 years in to a 10 year $400,000 term policy. The premium is about $400 per year. If I were to renew it at the end of the term my premium would be roughly $7500. I’m not sure what to do now … convert to whole or universal life – what are the pros and cons of each? What about extending my current term policy now instead of waiting until it expires?

  • Bcoy

    David, you’re right so long as you view life insurance as it was originally intended: insurance against unexpected financial loss because of your death. However, whole life insurance is an entirely different beast, and acts more as a savings account … that is, once you’re old and nobody’s depending on your income, you can withdraw funds from your whole life policy to pay for medical bills, vacations, or whatever you want. This is an entirely different application of life insurance, but it’s one way that older people use it when it doesn’t need to be income replacement for their dependents.

  • Ben

    Good points David, glad to have you as a reader 🙂 As I’ve started looking into life insurance, it sounds like a 20-30 year term policy might be the best for me, it would cover my family during the time period you mention. Now I just have to decide, 20 or 30 years, and the amount of coverage to buy.

  • David

    Long time reader, first time commenter =)

    To expand on question 3, young and healthy is exactly when you need life insurance, not when you are old. This is assuming, of course, that you are paying a mortgage and supporting a family. Life insurance provides financial stability for those that depend on your income. By the time you are old, you are closer to having your mortgage paid off and your children are financially independent, so there is less of a need for life insurance. Similarly, if you are young and don’t have a family or aren’t paying a mortgage, there is less of a need for you to get life insurance. Also, the agent was correct about buying now to lock in the price — if you buy a 20 or 30 year policy now, your rate will be much lower and will not change over the course of the policy.


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