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Term Life - FAQs

Age

Q. Am I too old to get life insurance?

A. You can get competitive quotes for life insurance coverage up to age 75 and beyond. These cases require special handling.

Cost

Q. Can a $100,000 ten-year level term policy cost less than a $25,000 or $50,000 five-year level term policy?

A. There are more term policies available at $100,000 than $25,000 or $50,000, because many life insurance companies have minimum issues of $100,000 of death benefit. This means more competition, which often translates into lower premiums on $100,000 term policies than $25,000 or $50,000 term policies. Also, life insurance companies recognize a trend in consumer demand towards longer duration level term policies. To remain competitive, most companies have continued to lower the rates on longer duration level term products, often ignoring annual renewable and five-year level term products.

Q. Are there significant discounts available to people in better than average health?

A. Most life insurance companies now offer a preferred plus class, for the person in better than average health. The preferred plus class is more difficult to qualify for than the regular preferred, only about 15% to 20% applying qualify for these rates.

Q. Can life insurance premiums be tax deductible?

A. If you are an owner and employee of a corporation, you may be eligible to participate in certain kinds of employee benefit plans that offer tax deductions for life insurance benefits.

Definitions

Q. What is life insurance?

A. Life insurance offers a way to replace the loss of income that occurs when someone dies. It is a contract between you as the insured person and the company or "carrier" that is providing the insurance. If you die while the contract is in force, the insurance company pays a specified sum of money free of income tax to the person or persons you name as beneficiaries.

A good life insurance program does more than just replace the loss of income that occurs if you die. It should also provide money to cover the new costs that arise after your death. And these cash benefits should provide for your family's future needs as well, including college education for your children or part of all of your spouse's retirement needs. In almost all cases, your beneficiary can use the cash benefits in the way he or she sees fit, without restriction.

Q. What is term insurance?

A. Term insurance provides protection for a specified period of time: a term of 1, 5, 10, 15, or 20 years is available. The type of policy only pays a benefit if you die during the policy term. Term insurance does not build cash value. If you stop paying your premium, the insurance expires. This insurance generally is less expensive than other types of life insurance.

Q. Which plan is right for me?

A. Currently, insurance companies' offerings include level payment 5, 10, 15 and 20-year term prices. The 5-year and 10-year policies are best for people who want to keep their policies for no more than 10 years. Usually, if you feel that your need is at least 5 years, you may best be served a 10-year policy because the cost will be substantially less than the 5-year amount when looked at on a cumulative basis. There are extenuating circumstances and unique situations that arise with some applicants. The 15-year and 20-year policies are very well priced. A brief evaluation of the figures with respect to your personal family situation will quickly reveal which alternatives are best. This is something that you could benefit from a brief discussion with an expert.

Q. What does convertibility mean?

A. You are guaranteed the right to convert your term insurance policy to permanent insurance without evidence of insurability.

Q. What are some key insurance terms I should know?

A. Key Terms:

•  Outlay: The actual cash payment you make to the insurance company each year.
• Net cost: Your total payments for a policy less any cash value in your policy, the profit is less if you cancelled the policy at a given date.
• Riders: These are added benefits that can be purchased on a policy. Some popular riders allow for investing excess cash in a policy, or providing a waiver of premiums if you become totally disabled, or to pay additional benefits of you die of accidental causes or providing low cost benefits for a spouse and/or children.
• Long-term care benefits: A special rider offered by some companies will pay long-term or catastrophic health care benefits as a supplemental benefit. These are called living benefit or care riders.
• Re-entry: On many term plans the company will grant a significant discount on future premiums if you agree to take a new medical exam. Of course, the discount is only available if you pass the exam.
• A rated policy: This may be the result of having an adverse health history, or may be due to occupation, or hazardous activities. In the event an applicant is offered coverage at a higher rate due to unfavorable information, consumer laws in most states provide the consumer or his physician certain rights of access to this information.
• Smoker status: Insurers will give a lower premium rate to buyers who do not smoke or use tobacco. If you smoked in the past, most carriers will consider you a non-smoker if you have not smoked for one year prior to applying for coverage. Consumers should be aware that nicotine can be detected in a variety of routine screening tests that are now commonly required by most insurance companies.
• Insurance company ratings: There are five major insurance industry rating services: A.M. Best, Standard & Poor's, Moody's, Duff & Phelps, and Weiss. These services provide information on insurance company financial performances, stability, claims paying ability, and more. The top ratings are: A.M. Best = A++, Standard & Poor's = AAA, Moody's = AAA, Duff & Phelps = AAA, Weiss = A+.

Health

Q. If I had heart bypass surgery one year ago, am I able to buy life insurance today?

A. Provided you are taking care of yourself and seeing a doctor regularly, many life insurance companies offer their best products at competitive rates, as little as one year after bypass surgery. No exam is required for an initial quote; medical records and information can be sent confidentially from your doctor to the insurance company, where we can obtain tentative quotes from various companies. Surprisingly, the best offers often come from the biggest and best-known insurance companies. These cases require special handling.

Q. I had a heart attack, can I still purchase life insurance?

A. Provided you are taking care of yourself and seeing a doctor regularly, many life insurance companies offer their best products at competitive rates, as little as one year after bypass surgery. No exam is required for an initial quote; medical records and information can be sent confidentially from your doctor to the insurance company, where we can obtain tentative quotes from various companies. Surprisingly, the best offers often come from the biggest and best-known insurance companies. These cases require special handling.

Q. I am diabetic, can I purchase life insurance?

A. Provided you are taking care of yourself and seeing a doctor regularly, many life insurance companies offer their best products at competitive rates. No exam is required for an initial quote; medical records and information can be sent confidentially from your doctor to the insurance company. Tentative quotes can be obtained from various companies. Surprisingly, the best offers often come from the biggest and best-known insurance companies. These cases require special handling.

Q. I have high blood pressure, can I purchase life insurance?

A.  Provided you are taking care of yourself and seeing a doctor regularly, many life insurance companies offer their best products at competitive rates. No exam is required for an initial quote; medical records and information can be sent confidentially from your doctor to the insurance company. Tentative quotes can be obtained from various companies. Surprisingly, the best offers often come from the biggest and best-known insurance companies. These cases require special handling.

Misc.

Q. How do I obtain life insurance?

A. Once you decide which plan is right for you, call us or apply online. One of our representatives will contact you to arrange completion of all required insurance company forms. If a medical exam is needed, the representative will arrange it at a time and place that is convenient for you. We will handle all the details to obtain your coverage as quickly as possible. Once you have been approved, your policy will be delivered to you for inspection. State consumer laws require a "free-look" period. If you change your mind, you may return your policy and receive a full refund from the insurance company within a specified period of time.

Q. What can term insurance do for me?

A. Many experts embrace the idea that you should "buy term and invest the rest." Buying a term policy may allow you to secure the coverage you need, while giving you the latitude to invest the amount saved over the cost of permanent insurance in potentially higher-yielding vehicles, such as stocks and bonds.

Q. What happens when my term is over?

A. If your policy is renewable beyond the guarantee period, it will contain a provision for what your maximum renewable premium will be. In many policies there is also an illustrated premium, which is what the insurance company "projects" the future premium to be (this is lower than the guaranteed maximum premium). The projected renewal premium is not guaranteed and can be higher or lower than what is shown but never higher than the guaranteed maximum premium.

Q. Can I have more than one policy?

A. Yes. You can have a permanent life insurance policy and add a supplemental term life policy for a short-term need, for example. If you request more insurance coverage than your expenses indicate you need, the insurance company will want proof that a medical condition is not motivating your request.

Q. What if my policy lapses?

A. If a policy lapses, most companies allow you a grace period in which to pay your premium and continue the policy. If you have enough cash value built up in your policy, most companies will use part of the cash values to pay the premium due. If you have a term policy and don't pay within the grace period, your policy will lapse and simply end.

Needs

Q. Do I need life insurance?

A. Life insurance is a unique asset that is a valuable addition to your overall estate due to its potentially high yield and tax-favored benefits. Life insurance can be used for any number of reasons. Some of the most common uses are:

• Creating an estate where time or other circumstances have kept the estate owner from accumulating sufficient assets to care for his or her loved ones. Life insurance can create an instant estate.
• Paying estate taxes and other estate settlement costs. These costs can vary from a low percentage of 3% to 4% percent to over 50% of the estate. Federal estate taxes are due nine months after death.
• Funding a business transfer. Business owners often agree to buy a deceased owner's share from his or her estate after death. Life insurance provides the ready cash to finance the transaction.
• Funding college for children or grandchildren. Cash value increases, in a policy on a minor's life or the parent's life, can be used to accumulate funds for college.
• Paying off the home mortgage. Many people would like to pass the family residence to their spouse or children free of any mortgage. Often a decreasing term policy is used, which decreases in face amount as the mortgage balance is paid down.
• Protecting a business from the loss of a key employee. Key employees are difficult to attract and retain. Their untimely death may cause a severe financial strain on the business.
• Creating a retirement fund. Current insurance products provide competitive returns and are a prudent way of accumulating necessary funds for retirement years.
• Replacing a charitable gift. Charitable remainder trusts provide tax benefits and life insurance can replace the value of the donated asset. Policies can also be paid directly to a charity.
• Guaranteeing loans. Personal or business loans can be paid off with insurance proceeds.
• Equalizing inheritances. When the family business passes to children who are active in it, life insurance can give an equal amount to the other children.

Q. How much life insurance do I need?

A. Generally speaking, the amount of life insurance that an individual should consider purchasing should be between six and eight times his or her annual earnings. However, there are many factors that should be taken into account when calculating this figure. For example, income sources and amounts other than salary earnings, whether or not the individual is married and, if so, what the spouse's earning capacity amounts to, the number of individuals who are financially dependent on the insured, the amount of death benefits payable from Social Security and from an employer-sponsored life insurance plan, whether any special life insurance needs exist, and so on, are some things to be considered in determining a more precise estimate.

Q. What about purchasing life insurance on my children?

A. You can either buy a separate policy for your child(ren) or purchase a child rider that will allow you to cover your child(ren) on your policy. The availability and acceptance of children as a rider varies by company. When you request an application you can indicate your desire for such coverage and we will advise you as to the availability and/or exclusions and cost.

Q. How much life insurance should the mother of one infant have?

A. My husband and I both work. There are a number of things to consider when calculating the amount of insurance that any given individual should own. Opinions differ as to exactly how to calculate the appropriate amount of life insurance. Be wary of rules of thumb advice such as multiplying your current earnings by eight because they tend to be misleading, these quick solutions oftentimes do not take important factors such as age and future earning potential into consideration (factors which, when improperly calculated, can produce dramatically different estimates). There are a number of life insurance calculators on the Internet that can more accurately guide you to a figure that would fulfill your insurance needs. Naturally, these calculators take certain factors into consideration, but the actuaries and other financial analysts who create these tools are cognizant of prevailing investment/financial strategies. Typically, however, when you attempt to calculate the amount of insurance that is right for you, there are a few basic things to take into consideration:

Life insurance is intended to secure your family's financial security in the event of your death. Unfortunately few people realize exactly what their individual contributions to their families actually are. In your case, calculating your contribution to your family's net earnings is complicated by the fact that you are the mother of an infant. Aside from the loss of your income, your husband would incur additional costs in raising your child as a single parent. Furthermore, if your family currently holds health insurance through your employer, the loss of those benefits would incur additional health care costs for your survivors. Finally, saving for your child's future college education would become increasingly difficult with only one source of income. The amount of insurance you choose to purchase should reflect the contribution of your salary to your family's adjusted standard of living, and this figure is impacted by your current age and your future earning potential. The primary goal of insurance is to replace this loss of income.

Perhaps a term life insurance policy is your best option. One major benefit of term insurance is its low price. Most individuals can actually afford to adequately insure themselves because term insurance is so inexpensive. Term insurance can also be an attractive alternative if you decide that you only require life insurance coverage through a certain point in your life, e.g., when your child graduates from college.

Whatever standard of living that you intend to provide for your child during your lifetime should be taken into consideration when calculating the amount of life insurance you purchase. Term coverage can allow you the flexibility to save and invest, and the potential for securing adequate coverage for the time when you need it most.

Purchase

Q. What happens after I request an application? How long will the process take?

A. Application: An application will be mailed to you for your review and/or completion and signature (if for some reason we cannot facilitate your application you will be notified immediately). We will provide you with a postage-paid envelope in which to return your completed application.

Medical Exam: You will be contacted to set a time for a medical exam. The exam normally takes place at your home but can also be scheduled at the examiner's office or your work. The exam takes about 30 minutes and generally consists of a height and weight measurement, blood pressure reading and blood and urine sample. If you request, results of the exam will be provided to you.

Underwriting: After your application and medical results are received by the insurance company, underwriting will begin. Underwriting is the term used to describe the process the insurance company undertakes to determine whether or not you are approved for coverage. During this process, the company will review additional information and/or request medical records from your doctor. The normal underwriting time is 4-8 weeks.

Decision: After your exam results and application are reviewed by the insurance company, it will notify you as to whether or not you were approved for coverage. There are three scenarios that can occur at the decision stage:

• Your application is approved at the same rate class as was requested. In this case your policy will automatically be mailed to you.
• Your application is approved at a higher rate than what was quoted. For example, you applied for Preferred but your cholesterol was elevated on the health exam and the insurance company approves you at Standard. In this case we will notify you that your application was approved at a higher rate and ask whether or not you are still interested in coverage. If you are, your policy will be mailed.
• Your application for coverage is denied. If your application is approved at a higher rate than you applied or if your application was denied, you will be provided the reason(s).

Coverage: Once you receive your policy, satisfy any outstanding requirements, and pay your first premium (if you did not elect temporary coverage if it was available), your policy will go into effect and your coverage will begin!

Q. How can I help expedite the process?

A. The most time-consuming portion of the application process involves the satisfaction of medical requirements. Medical requirements vary by insurance company, by applicant age, and by amount of insurance purchased. The insurance company needs all the required information before the underwriting process can begin. Whether it is the completion of a brief paramedical exam or requiring medical information from your doctor, your assistance in ensuring that these requirements are satisfied will dramatically affect the processing of your application.

Q. Do I have to send money with my application?

A. No. We do not require you to send money with the application. However, many companies will provide you with limited temporary coverage while your application is being reviewed if you remit the first premium payment with your application. In some instances, temporary coverage is not allowed. When you request an application, we will notify you if temporary coverage is an option.

Q. What does the medical exam entail?

A. For individual life purchases, you will be classified based on height, weight, nicotine use, and other health factors. Your health status will determine what rate class category you fit in, so even if you have some health problems, you could be covered. There is no public list of factors available; however, your agent should explain what criteria determine the class into which you fall.

Q. How do I check on the status of my application?

A. To check on the status of your application, call us and speak to one of our trained experts.

Q. How can I pay for my life insurance?

A. You can pay your premiums annually, semiannually, quarterly, or in monthly payments. Many companies also allow you to have your premium automatically deducted from your bank account or charged to your credit card.

Rating

Q. What do the A.M. Best insurance company ratings mean?

A. A.M. Best is perhaps the oldest and most recognized company rating life insurance companies for financial strength and solvency. Companies rated A++ and A+ are considered "Superior" companies and companies rated A and A- are considered "Excellent" companies.

Smoking

Q. If I quit smoking, how long do I have to wait to get nonsmoker rates?

A. The length of time varies, but with most life insurance companies you would have to quit smoking for 12 to 24 months to be considered for nonsmoker rates. There can be as much as a 30% to 50% savings going from smoker to nonsmoker rates.

Q. Can cigar or pipe smokers get nonsmoker rates?

A. Most life insurance companies consider cigar or pipe smoking the same as cigarette smoking, with premium rates 30% to 50% higher than nonsmoker rates. A few of the top-rated life insurance companies disagree, offering nonsmoker rates to cigar or pipe smokers.

Q. What are the general guidelines that determine preferred nonsmoker rates?

A. There are several criteria:

• No tobacco usage of any kind in the last 3 years
• No history of, or current treatment for, high blood pressure, cancer, diabetes, mental or nervous disorders, or disorders of the heart, lungs, liver, or kidneys
• No incidence, prior to age 60, of cardiovascular disease in immediate family (parents, siblings)
• All values should be favorable, including cholesterol, triglycerides, and lipids
• No abnormal findings in urinalysis; presence of nicotine may disqualify you for preferred class
• Height and weight must comply with established underwriting guidelines
• No convictions for reckless driving or driving under the influence of alcohol or drugs in the past 5 years
• No participation in hazardous activities or avocations that require rating
• Private pilots may be preferred but may have flat extra premium or exclusion
• No residence outside U.S. or Canada