Life Insurance — FAQ

What’s the difference between term and permanent life insurance?

A term policy is temporary – it will remain in effect for a limited time. Annual renewable term policies are very economical in the beginning but increase each year as you age. With a level term policy, you can lock in your rates for a specified number of years ranging from 1 to 30 years. Permanent policies, including whole life, variable life and universal life insurance, offer lifetime coverage and tax-deferred, cash-value accumulation. Whole life premiums are guaranteed to remain level for the life of the policy; with universal life policies, you can vary your premium payments as your needs change.

What happens if an insurer finds out a policyholder wasn’t truthful on a life insurance application?

The worst case scenario is under certain circumstances, your policy could be voided if you fail to disclose a material illness or omit other material information. If this were the case, then your beneficiary would be refunded only the premiums paid prior to your death. With respect to omissions or misstatements made in an application, after it has been in force for a period of two years from the date of issue, the policy is not contestable.

My spouse has decided to purchase life insurance and says I need some too. Do we both need life insurance?

If your death – or your spouse’s – would leave your family in a financially challenging position, then life insurance for the both of you would be appropriate. Consider the remaining partner’s financial situation without you there. Whether it be routine expenses or big ticket items such as the mortgage or a college tuition, life insurance can help offset these expenses. If one of you is a stay at home parent, life insurance can help replace lost income essential to continuing to be at home during the early years of a child’s life or provide assistance for childcare while a parent prepares for re-entering the workforce.

I’m single. Do I need insurance at this stage of my life?

Do you have assets you would want to protect in the event of a major unforeseen catastrophe? Do you have dependents who rely on your income? First, you may want to consider major medical because an unforeseen catastrophe could wipe out your financial health as well as your physical health. Second, you may want to consider disability insurance which would replace a percentage of your income until you are back on your feet.

I’ve heard references to “preferred” life insurance rates in advertisements. What does the term mean and who qualifies?

Life insurance companies underwrite and evaluate applications and “preferred” translates to a better rating and lower costing policy. In general, those are reserved for the top 10% of applicants and insurance companies take into account an applicant’s risks, health, family health history and tobacco usage. Each insurance company has their own guidelines and a skilled professional can assist by finding the best policy based on your unique situation.

When reading about life insurance or other types of insurance, I sometimes run across various industry ratings. Just what are these ratings and what do they mean to me?

Ratings are an important consideration when evaluating carriers. Ratings are an objective way to determine a company’s stability and financial strength. Ratings are based on many factors, including profitability, management practices, asset quality, adequacy of reserves and capitalization and claims paying ability.