Frequently asked questions regarding life insurance

How will my beneficiary file a death claim?

What will my beneficiary need to file a death claim?

How much life insurance do I need?

What's the difference between whole life and term insurance?

What are the three main types of permanent insurance?

What should I consider in naming life insurance beneficiaries?

Does it make sense to replace a policy?

What happens if I fail to make the required premium payments?

As a single person, do I need insurance?

I have the option of retiring early. How can I be sure to make the right decision?

Is a buyer's guide available?

How do accelerated death benefits work?

Q: How will my beneficiary file a death claim?

A: The beneficiary or beneficiary's representative can call us and ask for Life Claims. We will ask your beneficiary a series of questions about your policy and the manner and cause of your death. We will carefully guide the caller through the steps necessary to file the life insurance claim. A packet will be sent within one business day to the beneficiary or his/her representative with explicit instructions.

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Q: What will my beneficiary need to file a death claim?

A: Keep all life insurance/annuity policies, telephone numbers of the insurance companies, your will, and any final instructions in one place that is known to your immediate family members. Maintain your medical history, including doctors' names and dates of visits. The life insurance company may need your medical history at the time of your death. We will also require a certified copy of the death certificate. A large postage-paid envelope will be included in the packet to the beneficiary, along with the letter-writer's name and extension, in the event your beneficiary needs assistance in completing the claim forms. Our goal is to make this process as easy as possible for your beneficiary.

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Q: How much life insurance do I need?

A: If you are providing financial support for people who are depending on you, you most probably need life insurance. For the most part, life insurance needs can be categorized into two types: immediate cash needs (last expenses, education needs, etc.) and ongoing income needs. The American Council of Life Insurers recommends that, as a rule of thumb, an individual should have five to seven times their income in life insurance.

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Q: What's the difference between  whole life and term insurance?

A: Whole life insurance, the most traditional form of "permanent" insurance, can be kept in force for as long as you live. The face amount and the premium (the amount you pay for protection each year) usually are fixed at the time you buy your policy and stay the same even as you age. The policy's cash value grows as guaranteed by the schedule in the policy and can be used as collateral to borrow against your policy. It also provides other nonforfeiture values which may keep your coverage in force in the event your policy lapses due to nonpayment of premium.

While permanent insurance is usually recommended as the core of an insurance program, term insurance is good for people who need coverage for short periods of time – younger families, say, who need large amounts of protection for one year, five years, or more. Lower premiums at younger ages increase as policyholders age and renew their policies. Benefits are paid only if death occurs during the period covered. If you stop paying premiums, in most cases the insurance stops. Term policies generally have no cash value and no residual rights if the policy is canceled or lapses due to nonpayment of premium.

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Q: What are the three main types of permanent insurance?

A: Whole life (discussed above), universal life, and variable life are all permanent insurance and can provide lifetime protection and accumulate cash value. Unlike most whole life policies, the cash value in universal life is linked to interest rates, and the cash value of variable life is linked to investment options. With universal life insurance, you can reduce or increase the amount of the death benefit and vary the amount or timing of premium payments, subject to policy limitations. Variable life allows you to allocate your premiums among a variety of investment options offering varying degrees of risk. The cash value of universal life and variable life policies is not guaranteed, although some policies set a minimum death benefit.

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Q: What should I consider in naming life insurance beneficiaries?

A:  (a)  Select a specific beneficiary, rather than having the proceeds of your life insurance paid to your estate. One of the great advantages of life insurance is that it can be paid to your beneficiary immediately. If it is payable to your estate, however, it will have to go through probate with the rest of your assets.

 (b) Always name a "contingent" (or secondary) beneficiary, just in case you outlive your primary (first) beneficiary.

 (c) Be very specific in wording beneficiary designations. Saying "wife of the insured" could result in an ex-spouse getting the proceeds. Naming specific children may exclude those born later. If your child dies before you, do you want the proceeds to go to that child's children; or do you want that child's portion shared among your surviving children? Changing the beneficiary designation is easy, but you have to remember to do it. Due to the various issues involved, an insurance professional can be an excellent source of information to help you properly set up your beneficiary designations.

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Q: Does it make sense to replace a policy?

A: Think twice before you do, because in many situations it may not be to your advantage. Before dropping any in-force policy, consider:

If your health status has changed over the years, you may no longer be insurable at standard rates.

 

Your present policy may have a lower premium rate than is required on a new policy of the same type, if for no other reason than that you are older now.

 

If you replace one cash-value policy with another, the cash value of the new policy may be relatively small for several years and may never be as large as that of the original one.

 

You will be subject to new contestability and suicide exclusion periods.

 

You should ask your insurance representative for a detailed listing of cost breakdowns of both policies, including premiums, cash surrender values, and death benefits. Compare these as well as the features offered by both policies.

If you decide to cancel, surrender or reduce the value of the policy you now own and replace it with other insurance, be sure that:

 

the agent making the proposal puts it in writing;

 

you pass any required medical examination; and

 

your new policy is in force before you cancel the old one.

 

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Q: What happens if I fail to make the required premium payments?

A: If you miss a premium payment, you typically have a 31-day grace period during which you can pay the premium with no interest charged and during which coverage remains in force. After that, the company (with your authorization) can draw from a permanent policy's cash value to keep that policy in force. In some flexible-premium policies, premiums may be reduced or skipped as long as sufficient cash values remain in the policy. However, this will result in lower cash values and, possibly, a shortened coverage period.

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Q: As a single person, do I need insurance?

A: The answer almost definitely is "yes." You may want to consider these options:

Disability income insurance – especially important for self-supporting singles without sizable assets, this can replace a good part of the income you would lose if you were unable to work because of accident or illness. If you don't have long-term disability coverage at work, ask your life insurance representative about an individual policy designed to replace at least 60 percent of your income.

 

Health insurance – if you don't have on-the-job coverage, an individual policy is your first line of defense against ever-escalating medical and hospital costs. You can keep premium costs down by electing a large deductible, thereby "self-insuring" as much as you can afford.

 

Life insurance – even if you have no dependents now, you may later. If you buy now when you are younger and healthier, you can "lock in" coverage at a reasonable rate.

 

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Q: I have the option of retiring early. How can I be sure to make the right decision?

A: Work out a detailed budget: mortgage payments, daily living expenses, loan repayments, college tuition, etc. Will you need a new car in the next few years? Determine your exact income from all sources. You'll probably need 75 to 85 percent of your present income to live comfortably in your retirement. How much can you expect from your company pension? Remember, Social Security won't start until age 62, and even then, at a lower rate than it would for normal retirement at 65 or older. Ask if your company will offset that loss until the normal Social Security retirement age. Will it offer you an additional bonus for taking early retirement? Also, look at your health insurance. Health care costs can eat up a major portion of a retiree's budget. Will your company continue your health insurance into retirement? If so, will it continue to fund premiums as costs go up? You can't afford to be uninsured in the years before you become eligible for Medicare. Even then, Medicare covers only about one-half of health care costs, so you will need supplemental insurance.

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Q: Is a buyer's guide available?

A: Most states require companies to give consumers a buyer's guide to help them understand life insurance terms, benefits, and costs. Ask your agent for a free copy.

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Q: How do accelerated death benefits work?

A: More than 200 insurers now offer this "living benefits" option to ease the financial burdens of the seriously ill or incapacitated. It allows policyholders to receive all or part of the policy's proceeds prior to death under certain circumstances. Because payments may affect tax status and Medicare eligibility, and will be deducted from the overall benefits paid later to beneficiaries, policyholders should thoroughly investigate using this benefit in advance.

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Industry Resources

American Council of Life Insurers
This Web site offers information on how to shop on-line for insurance products including long-term care insurance. An interactive personal financial checkup is also offered to help individuals assess their own fiscal futures.

Life and Health Insurance Foundation
Find out about life, health, and disability insurance, and their roles in a sound financial plan.