8 Essential Questions to Ask Before Buying Life Insurance

Normally when you are buying a new product, you compare its features and benefits according to how they will meet your needs and fit into your life. However, when you are looking at life insurance policies you are not looking for a product for you, but for your family, and so you want to make very sure that you are buying a policy with all of the features, benefits, inclusions and extras that they could ever need when you’re not around to provide for them anymore.

Therefore, when you are shopping around for the best life insurance policy, you will want to have eight important questions on hand to make sure you understand every aspect of your policy, and that you are getting everything you need.

Also make sure to keep a record of the name and date of the person you spoke with at each insurance company so that you can easily follow up later. Also, as you ask each question, write detailed answers and who will be responsible for following up or completing that task.

1 – What do I want from my life insurance?

Before you can find a life insurance policy which meets your needs you need to clarify what those needs are. For example, are you taking out a life insurance policy to protect your family, do you want to make sure it covers your new mortgage or do you want to make sure you can leave your family a healthy inheritance, or make a donation to charity?

Remember that most people who choose a term life insurance policy will never make a claim as the term runs out before their death. Therefore, you may want to choose a term life insurance to cover your family as they grow up, and once the kids leave home and your mortgage is repaid, you would leave less of a financial burden if you died.

2 – What types of life insurance policies are there?

There are two main types of life insurance you can access – group or individual:

  1. Group. Many companies offer some form of life insurance, usually a term life insurance policy, as part of their employee benefits. In this case you are getting protection as part of a group and the cost for the policy is deducted directly from your wages. To qualify you usually only have to complete a short questionnaire about your health, making the policy easy to access. You can also often choose to add benefits such as medical or dental.
  2. Individual. With an individual policy you or another family member will own the policy, and you will have to undergo some form of medical examination before being approved. You’ll also need to provide a detailed record of your medical and family history. The benefit of an individual policy is that you can tailor it to your needs and then take it with you when you change jobs. You will also be paying level premiums, and you’ll retain the flexibility to upgrade your policy to a group policy or change a term policy into a permanent one.

3 – What happens at the end of a term life insurance policy?

If you take out a term life insurance policy and you out live the term then you will need to be aware of your options:

  1. Your premiums will go up. If you are approaching the end of your term policy and you want to keep your insurance, then you will need to pay higher premiums.
  2. You can apply for a new policy. If you are healthy at the end of your term life insurance policy but you want to continue your coverage, you can apply for a new policy.
  3. Change your coverage. At the end of your term life insurance your circumstances may have changed, and if you only wanted life insurance for as long as you were repaying a mortgage, or your children were studying, you can change your coverage when those circumstances are no longer relevant.
  4. Upgrade to a permanent policy. You should look for a term policy which comes with a conversion privilege as this will allow you to trade in your old term life insurance policy for a permanent policy.

4 – How can my life insurance be upgraded?

There are a number of ways you can adjust your policy and coverage, and if you want to make sure you have flexibility in your policy, ask the following questions:

  • When can I convert a term policy? You can usually convert a term policy to a permanent policy at the end of the term, or at any time during the term, where others won’t let you convert after the age of 70.
  • Is the policy convertible? Convertible refers to whether you can exchange your renewable term policy for another policy without having to be assessed for insurability again.
  • When does the policy expire?
  • Is the policy renewable? Make sure you know what happens at renewal and whether you need to take another medical.
  • Can I cancel the policy? There can often be cancellation fees involved.
  • How often should I review my life insurance policy needs?
  • Under what circumstances could the insurance company cancel my policy?

5 – What are my premiums?

Comparing the cost of the insurance premiums you have to pay each month is a good way to assess the value of each policy. When it comes to comparing and understanding your premiums, ask your insurance company the following questions:

  • What would cause my premiums to change? There could also be an instance where the cost of your premiums and policy go down.
  • Am I paying more or less than the national average? Your insurance agent should be able to show you where you fall within the national averages and why.
  • How can I pay my premiums? You should have the option of paying annually, bi-annually or monthly.
  • What happen if I miss a premium? You need to know at what point your cover will lapse.

6 – What is included in my life insurance policy?

Make sure you read and understand all of the inclusions of your policy. You’ll also need to understand the exclusions and limitations of the policy as these are instances where your family won’t receive a benefit.

7 – What are the features of my policy?

You will need to understand exactly how your policy works, which you can do by asking the following questions:

  • Can I name any beneficiary I choose?
  • If I name a beneficiary who is a minor do I also need to appoint a trustee or guardian?
  • How can I change a beneficiary?
  • Will my family be taxed on the life insurance benefits they receive?
  • How can my family file a claim and how long does a claim take to be processed and paid?
  • Should I also buy a life insurance policy for my partner or my children?
  • Is there any disability insurance also included

8 – What is involved in the application?

Find out whether you need to complete a medical exam to assess your eligibility for the insurance policy. The findings of the medical report can also determine how much your premiums are. You will also need to know how soon your cover comes into effect after your application is submitted.

Kristy Ramirez writes for Life Insurance Finder where she helps people to compare and select the best life insurance policy to meet their needs at the best possible price.

Comments

  1. My opinion is that insurance should not be considered an investment or a windfall generation tool. Insurance is evening out surprises. If you can self-insure, then you don’t need insurance. You can self insure for example if are retired, have paid off the house, and have enough in the bank to cover your living expenses — probably if you die then the survivor will not be at financial risk. However, if your family needs your income to survive then you need insurance to replace the income.

    Once you start getting into fancy insurance policies with investment components they start to defy analysis a little and are probably a bad deal.

    Every insurance policy can be considered a “group” because insurance shares the risk across the group. For example, if you’re a smoker then you will get a higher rate because you are part of a more unhealthy group. To get the lowest premiums, if you’re healthy and lead a low risk lifestyle then try to get into a very specific group of healthy people like you so you don’t subsidize unhealthy people. But if you’re very unhealthy then try to get into a big group where your premiums will be subsidized by healthier people. Employer group policies are usually part of large diverse groups where one of the only criteria is just being an employee of a certain type of company.

  2. @Alex – Yes in some way most insurance is ‘group insurance’ in so far as the premiums are calculated based on average risk. Being healthy can not only help you live longer and stay independent but also helps your hip pocket when it comes to life insurance premiums.

  3. #2 is key. If you don’t understand how life insurance works, and the different options, you might end up buying the wrong policy, or buying the wrong amount. Or you’ll buy insurance for the wrong reasons. Do a lot of research first so you don’t waste your time or money.

  4. Your headline caught my curiosity….I was hoping that someone with a medium might actually give accurate information. Let me correct you when you claim there to be “two differenct types of life insurance, group and individual”. I suppose that statment is somewhat correct, but hardly. The two types are Term and Permanent. One is renting the contract (Term) and the other is owning the contract (Permanent). If a person really cares about the well being of his/her family during retirement and after death, you invest in Permanent. If you only care about accidental death, Term will suffice….becuase thats all Term is….accidental or premature death coverage…only 2% of claims are paid out for Term…pretty easy to see why the insurance companies push Term…(its a gravy train).

  5. Some of the author’s points are a bit off for the North American market. For example, the discussion of renewing is technically true, but renewal premiums are so high that nobody actually does it anymore.

    But the author hits on one vital feature that I find is rarely discussed – conversion. If you buy a term policy, make sure it has conversion (if not, buy a different policy). Even if you think you’ll never need to change to permanent, conversion allows you options based on a worst case scenario – you can’t take a medical exam. Conversion doesn’t cost anything, so you might as well have the option just in case.

    In terms of Richard’s previous comments, buying term isn’t renting. that’s a standard sales pitch designed to make people think term insurance is inferior somehow. And they do that because despite Richard’s assertation that companies like term, in fact you’ll find that many, perhaps most, life insurance companies would prefer to sell they heck out of permanent life insurance not term.

  6. You should always work with an independent financial advisor that will present the best quotes according to your needs and financial goals.

    If you are looking for an independent financial advisor to get a life insurance quote, please contact me at 813-964-7100 or 716-565-1300

    Seniors and Burial Life Insurance available.

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