Are life insurance policy death benefits taxable?
The proceeds of any life insurance policy are typically free from income and capital gains tax to the beneficiary, but they are potentially includable in the deceased’s estate for estate tax purposes. A trust arrangement can prevent this estate tax liability. Always consult your attorney or CPA for legal and tax advice.
How is my "Underwriting Class" and resulting premium rate determined?
The base, or ”standard” premiums, that have been priced by the companies for their products are only part of how your final premium is determined. Almost all products also have several premium discounts that are connected to “underwriting classes”, and your health determines which underwriting class you qualify for. It is entirely possible for one person's health class to be rated as "Standard" with one company and qualify for a "Preferred" discount with another, so how companies underwrite is as important as their published premium rates in determining your final premium.
In order to receive "Preferred" rates, you must be in excellent overall health and lead a healthy lifestyle. Each company sets “Preferred” limits on weight to height, cholesterol, blood pressure, and any significant personal health issues. Family health history is also a factor used in qualifying for lower Preferred rates. You generally cannot use tobacco of any type, have a history of alcohol abuse or drug use, and not be involved in hazardous activities to attain the best underwriting classes.
Can I designate whomever I want to be a beneficiary on my life insurance policy?
Although life insurance policy-owners generally are provided a good amount of flexibility when it comes to naming beneficiaries, people who are named as beneficiaries of a particular policy at the time of application must have an “insurable interest” in its owner.
Thankfully, insurable interest is presumed to exist for family members like spouses, children, grandchildren, parents, and siblings. It’s not presumed for more distant relatives, though, or people who aren’t related to you at all. Speaking of the latter, an insurer may deny your application for a life insurance policy if they decide the beneficiaries you name don’t have an insurable interest in you.
Many business needs establish insurable interest, and you can also name a charitable organization as your beneficiary.
How do the Term Insurance offers on TV work?
The advertisements you see on TV for term insurance are from independent insurance brokers that can shop the open market for best product, premium and carrier to meet your needs. By their nature, independent insurance brokers represent you the consumer, and have no obligation to any particular insurance company. Some of the term insurance companies also advertise direct.
Nash Financial Partners is an independent insurance broker and shops the market in the same way for the best solution for your needs. In addition to accessing all the same top insurance carriers, shopping for your term insurance needs with NFP means you have a personal relationship with a local broker to be your advocate.
How do the “Guaranteed Issue” policies advertised on TV work?
“Guaranteed Issue” policies can be a good solution for people that only need a small amount of funeral or final expense coverage and have moderate to significant health problems. These policies require you to answer either no health history questions, or only a few very general questions, in order to qualify for coverage. In order for the companies to be able to offer this coverage with little to no information about your health, they typically feature one or both of the following design features:
For people with moderate to significant health problems needing life insurance, NFP offers coverage for any size policy need, including “Guaranteed Issue” policies, as part of our full range of life insurance solutions. If you have had difficulty qualifying for insurance in the past, or believe you may have difficulty now, please see the “Life Insurance for People with Health Problems”section and then give me a call to discuss your situation.
What if I smoke cigarettes or use other forms of tobacco?
Due to increased health risks, rates for smokers are higher than those for non-smokers. To qualify for non-smoker rates, most companies require that you be a non-smoker for at least one year. Some companies will begin to offer Preferred classes to healthy smokers who have stopped smoking for two or three years. Most companies view other tobacco products (cigars, pipes, chewing tobacco) as the same rating as cigarettes, however a few companies allow pipe, cigar, and chewing tobacco to qualify as non-smokers.
Is a medical exam required?
Depending on your age and on the face amount size of the policy, life insurance companies can require a medical exam as part of the life insurance application process. If an exam is required, it can be completed at your home or any other convenient location. It takes about 15-30 minutes and is conducted by a licensed paramedical or medical doctor. The medical exam generally involves a series of questions regarding your medical history, blood pressure reading, height and weight measurement, and usually a blood and urine specimen for larger policies.
Can an insurance company cancel my life insurance?
Once a life insurance policy is issued, the insurance company cannot cancel or unilaterally impose any benefit changes during the policy period, as long as you continue to pay any required premium. However, the insurance company can cancel a policy if the required premium payments are not made or if any of the information you provide on the application is found to be a material misrepresentation.
What if I can’t pay premiums because I have become disabled?
Most life insurance policies offer a rider called Waiver of Premium, which pays the policy premium for you after you have been disabled for six months. Payments for insurance premiums will continue as long as you are disabled or for a set period of time, subject to the language in the rider. This rider is typically available for purchase up until age 55 and typically ends at age 60.
What riders/optional benefits are available on life insurance policies?
Following are some of the most common riders/optional benefits available:
Conversion Feature – allows the owner of a term life insurance policy to exchange (or convert) the policy to a permanent life insurance plan (whole life or universal life) without evidence of insurability.
Children’s Insurance Option – provides term life insurance coverage on each child of the insured’s family.
Accelerated Death Benefit - accelerates the availability of a portion of the death benefit if the insured is diagnosed as terminally ill by a licensed physician (must typically be terminal within 12 months).
Waiver of Premium Option - the insurance company will continue to make your life insurance premium payments if you become disabled.
Accidental Death Benefit Option – an additional death benefit will be paid if you die due to an accident.
Guaranteed Purchase Option - guarantees that you may purchase additional life insurance in the future without having to go through underwriting.
What is a “Return of Premium” benefit?
“Return of Premium” is a feature that has recently become popular and may be offered in conjunction with some term life insurance and Universal Life permanent policies. For term policies, the Return of Premium feature will generally provide for a refund of all or some of the premiums you paid for the term insurance at the end of a level term period or at end of the term coverage period if no death benefit was paid out during that period. For Universal Life, the Return of Premium benefit typically remains for the life of the policy, and at death pays an amount equal to the total premiums paid in addition to the scheduled death benefit.
Does it make sense to replace a policy?
Sometimes it can, but only after a comprehensive review of your existing coverage and a direct comparative analysis against any proposed new coverage to take its place. For more info about policy reviews, click here.
Important: Never cancel any existing coverage until the new policy that is intended to replace it has been approved, delivered to you and paid for.
Life Insurance FAQs
Answers to frequent questions about buying life insurance.