Life Insurance ~ Who needs it?

Frequently asked questions on life insurance. 

Do I need life insurance?

That is the question. Do you NEED life insurance.  Well, if you want to provide financial protection for your dependents (or to your creditors) in the event of your death, then yes you need life insurance. Below are typical examples of why a family or business may consider getting life insurance:

 

• Dependent children,spouse.
• Dependent parent or grandparent.
• Credit enhancement.
• Key person or business continuation 

Should one or more of these examples apply to you, the purchase of life insurance may be suitable for your needs.

How much life insurance do I need?

That depends on your individual needs and the reason why you are purchasing the policy. The question I ask people is what do you want to happen should you pass away suddenly.  What needs would you want the policy to look after.  Below are examples of what the life insurance could be used for, by providing your beneficiary with funds to:

• Pay off final expenses/debts such as medical bills and funeral expenses;
• Pay estate taxes and other expenses in settling an estate;
• Provide income for life for your spouse;
• Provide a monthly income until the children are grown and out of school.
• Pay off a mortgage;
• Pay for your children’s education;
• Provide funds for retirement;
• Provide an income for those surviving to give them time to readjust to a new standard of living;
• Give to a charity of choice

What is the difference between term and permanent life insurance?

Term life insurance provides death benefit protection for a certain period of time such as ten years or twenty years. Should the insured die during that term period then the death benefits are paid to the beneficiary. Generally, term policies do not build up any cash values and are purchased to cover some form of debt such as a mortgage.

Permanent  life insurance can come in several different types of policies such as whole life, universal life and term 100.  Permanent life insurance can provide death benefit protection for your lifetime and some policies can provide a cash value. Depending on the type of policy you have you may be able to borrow against the cash value by taking a loan.

Can anyone get life insurance?

No, not everyone will qualify for life insurance.  You will have to go through a process called underwriting, and there are varying levels of underwriting.  Depending on the amount of coverage you are applying for will often determine whether or not the company completes a full underwriting process, a simplified underwriting process or a guaranteed issue.  Each type of underwriting impacts the premium rates you will be charged.  You should ask your advisor what is required for underwriting the policy you are interested in, and find out what type of medical information, if any, needs to be provided.

What determines the cost of insurance?

Insurance companies usually take the following into consideration when deciding the cost of insurance:

• your age,
• your gender,
• your family health history,
• your health and health habits (smoking for example),
• dangerous hobbies (auto racing or sky diving for example) or
• whether you are engaged in a hazardous occupation

Once the insurance company receives this information from your application, they may ask you to fill out a health/lifestyle questionnaire or have a health examination or certain medical tests. They may also pull your medical records if they feel necessary.  The insurance company may also request that you consent to the preparation of an investigative consumer report or a Medical Information Bureau (MIB) report.

Do I need a sales illustration?

Yes, you should always get a sales illustration prior to purchase.  The illustration is meant to can help show you how the policy is expected to work. The illustration will show you what costs and benefits are guaranteed and what costs and benefits are not guaranteed. 

I have life insurance and I am thinking of replacing it, should I?

Replacing an existing life insurance policy may not be in your best interest and could cost you.  Before you replace your existing insurance make sure you have read the Life Insurance Replacement Declaration form that your advisor should present to you before making a decision.  This form will ask you questions about your present life insurance policy and questions on the advantages and disadvantages of a new life insurance policy.  If you do not feel comfortable with the answers then you should not replace your existing policy or ask for more information or explanation of how the new policy will work and why the advisor is recommending the change.  

If you intend to replace your policy, do not cancel your existing policy until the new policy is in force and you accept it.  You do not want to be left with no insurance in place should you not qualify for the new policy.

Things to think about before replacing your policy:

• If the replacement is with the same insurance provider they may be able to help you make a change to your current policy that is more favorable than replacing your existing coverage.
• If your health status has changed for the worse the premiums for the new policy will be higher.
• Ask about the contestable and the suicide provisions and if they will begin again in the new policy.
• Find out if your present policy has surrender charges which you will incur if you surrender your policy during the surrender charge period. You will also want to find out if you will be subject to a surrender charge period in your new policy.