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Investment Advisory Services are offered through Bright Futures Wealth Management and/or Cetera Advisors LLC registered investment advisers.  Securities are offered and sold through Cetera Advisors LLC, - A registered broker dealer. Member FINRA, SIPC. Bright Futures Wealth Management and Cetera Advisors LLC are not associated entities. Cetera is under separate ownership from any other company. Bright Futures Wealth Management is under separate ownership from any other company. Perrotto Private Wealth is under separate ownership.

This site is published for residents of the United States only. Financial Advisors of Cetera Advisors LLC, may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Not all of the products and services referenced on this site may be available in every state and through every advisor listed. For additional information please contact the advisor(s) listed on the site, visit the Cetera Advisors LLC site at www.CeteraAdvisors.com

 

Copyright © 2018 Perrotto Private Wealth Management. All rights reserved

Life Insurance Q and A

August 6, 2018

As an advisor, I get asked a lot of questions about life insurance, and polices that already are in force, so I put together a few Questions and Answers that I get asked the most about, and how each one effects the insured/owner. If you have any other questions, don't hesitate to give me a call.

 


Q: I currently have a life insurance policy; could I get a better price elsewhere?
A: Short answer, most likely. The long answer is that it depends on quite a few factors, and there’s no guarantee that your price will drop with a second application. One of the biggest things to keep in mind is your age. The older you are, the higher your chances of dying, which will increase the baseline price of a policy. Also, as you get older, the chances of something being wrong with you increases as well. Applying for a policy at 50 will be more expensive than applying at 40, all other things being equal.

 

Q: Guess what! My health has improved since I got my last policy, should I reapply for a better price?
Depending on how much your health has improved and the amount of time that has passed since your previous application, you could see significant price drops. One of the biggest ways to drop the price of your insurance is smoking. It’s one of the priciest things that you can do with regard to a life insurance application, and typically, you need to have kicked the habit at least one year before life insurance carriers are willing to look past your tobacco history. A smoker in his 40s can expect to pay three to four times as much. 


Q. My last agent sold me a policy from the company he worked for. Can I get a better price if I shop around?
A. This means that the agent that sold you the policy was what we call, captive. This means he only represented one insurance company. There are dozens of life insurance companies, and all offer different prices, benefits, and riders. The first thing you should do is work with an independent agent who isn’t forced to only work with one company. It’s very possible you will find a better policy with a better price. To give you a comparison, it’s like going to the store to buy a car, but they only have one car in one color for one price. To make sure you are getting the best price, ask for multiple quotes. 

 

Q: How long does it take my beneficiaries to get my life insurance death benefit?
A: Once the death benefit claim form and a copy of the death certificate have been received by the carrier, beneficiaries typically receive the death benefit check within 14 calendar days. Just remember, if the insured dies within two years of the policy, the insurance company has the right to investigate the death, so it may take a little while longer.

 

Q: How do I know my beneficiaries will get paid the death benefit?
A:Life insurance companies have been around a long time, and have gone through many trials and tribulations. They are not in the business of ripping beneficiaries off. As long as your policy is in force at the time of your death, meaning it was paid up and in good standing, your beneficiaries will receive the death benefit payout.  There are only a few exceptions to this, such as fraud.

 

Q: Are there any situations in which my life insurance policy won’t pay out?
A: There are three instances in which a life insurance company can choose to deny or reduce a term life insurance policy’s death benefit. Let’s look at each one in detail;


Contest-ability Period
Life insurance companies include a provision called an “Incontestability Clause”. This clause basically says the Life insurance company has a specific period of time (In a majority of cases, it’s 2 years) to contest the validity of any statements made on the insurance application. So if something happens to the insured within the “incontestability” period, the company has the right to investigate. One really easy example of this is, if you said you do not smoke cigarettes, so that you could pay less for insurance, when in fact you actually do, the insurance company would check your medical records, and may out right deny your beneficiaries claim. 

 

Suicide Clause
Another situation where a life insurance company would most likely deny your beneficiaries claim would be if the insured commits suicide within a certain period of time (again, most likely two years). They would deny the request, and return all premiums paid to the family, as opposed to outright denying the claim. 

 

Homicide
The last reason an insurance company may not pay a death benefit is over if the insured was murdered. The Insurance company would in this cases ask for a police report to make sure the beneficiary of the policy isn’t a suspect. If the beneficiary is a suspect, they would hold payment until the charges are dropped or the beneficiary is declared not guilty. 

 

Q: Will my life insurance death benefit payout be taxed?
A: In most cases, your beneficiaries will not have to pay federal or state income taxes on the death benefit they receive.  Premiums are paid using after-tax dollars, so they have been already taxed. There could be two exceptions to this rule, either through Estate taxes, or Gift taxes. If you own your own policy, the death benefit proceeds become part of your taxable estate.  If your estate exceeds the exclusion amount, which as of 2017 is $5.49 million, it can get taxed.  For most people, this isn’t an issue. The second exception can happen If the policy owner, insured, and beneficiary are three different people, the death benefit could count as a taxable gift to the beneficiary. One option to remedy both exceptions is to use an irrevocable life insurance trust. <~~ Link this to blog

 

Q: How can I be sure my policy’s life insurance company will still be around when I die? 
A: All major life insurance companies have financial strength ratings.  There are multiple agencies each with their own rating scales and standards that assess the long-term financial stability. These ratings follow an A through F scale.  The higher the rating, the more stable the company is and the more likely the company will be able to pay future claims. When you are looking to purchase life insurance, whoever you are using to buy it through, should tell you their rating.  Any company with an A rating or better I’d consider financially stable.

 

Q: How often should I review my policy?
A: I suggest reviewing your life insurance policy once per year to make sure you have enough coverage. I’d also suggest getting a quote to make sure you are paying the least amount for the most amount of coverage and features.  Most importantly, if any life and circumstances change, such as getting married, having a child, buying a home happen, you should upgrade your coverage.

 

Q: What should I look for during my policy review?
A: When reviewing your policy, you should look for anything that may need updating. Examples include your name, address, phone number, billing information, and beneficiary. You should review also your financials. You should ask yourself; Is this enough coverage? Did my health change for the better? Do I think I can qualify for a better rate? Any or all these can be reasons to review your policy.

 

Q: When should I update my beneficiaries?
A: Make sure you keep your beneficiary designations up to date.  There are certain life events that you will want to change beneficiaries. These include: Marriage or divorce, the birth or adoption of a child, or your designated beneficiary passes away.

 

Q: When should I apply for a new policy for more coverage?
A: This is a catch 22. As you get older, your insurance needs change, but your premiums will rise considerably.  You may have purchased a small insurance policy when you were fresh out of college to cover your student loans.  Ten years have passed and now you’re married with kids.  You would want to increase you policy to cover your kid’s schooling, as well as maybe a mortgage, etc. Any time you have a life changing event such as being married, or having a child, it’s a good idea to apply for a new policy with more coverage.
 

 

 

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