Life Insurance FAQs – Frequently Asked Questions

1. Should I buy term life or permanent life insurance?
2. What is the difference between whole life and universal life insurance?
3. What is the advantage of level term life insurance vs. yearly renewable term life insurance?
4. What riders/options/features are available on life insurance policies?
5. What is involved in the life insurance application process?
6. When does my life insurance coverage begin?
7. How is an applicant classified?
8. What if I receive a higher rate than I applied for on my life insurance policy?
9. What is the tax treatment of life insurance death benefit proceeds?
10. Should I purchase life insurance on my spouse?

Should I buy term life or permanent life insurance?

The type of life insurance you need is dependent upon your particular needs. Term life insurance is appropriate and more cost effective for temporary needs, which may be a period of one to thirty years. On the other hand, permanent life insurance is better for permanent or long term needs. In some cases, a mix of both term life and permanent life insurance may be suitable.

What is the difference between whole life and universal life insurance?

Whole life insurance and universal life insurance are both types of permanent life insurance; however, universal life has flexible premiums and an adjustable death benefit. Whole life insurance premiums are fixed level and the death benefit is not adjustable. Another difference between these two types of insurance is the cash value of a universal life insurance policy is interest sensitive. If interest rates go up, so will the cash values. A whole life insurance policy’s cash value is not very interest sensitive

What is the advantage of level term life insurance vs. yearly renewable term life insurance?

The advantage of level term life insurance is that the premiums remain level over a specified period of time. Yearly renewable term life insurance has a lower initial premium; however, the premium rises each year. Yearly renewable term life insurance is only cost effective for a few years because of the rising premiums. If you need term life insurance protection for more than a few years, then a level term life insurance policy can cost less.

Please carefully consider the length of the level premium period that will suit your needs. For example, if the primary purpose of the death benefit is to provide income to support very young children and/or to fund college education expenses, a 20-year level premium might be appropriate. If these children are already in their young teens, you may need only a 10-year level premium (longer level premium policies are more expensive).

After the level premium period expires, most policies require you to requalify with medical underwriting in order to receive a favorable premium. If you do not or cannot requalify, the premium typically rises dramatically after the expiration of the level premium period.

What riders/options/features are available on life insurance policies?

The following riders/options/features are available with some life insurance policies:

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.

Spousal Discount – if both a husband and a wife or two business partners purchase life insurance at the same time, then a discount will be deducted each year from the total cost of both policies.

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 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 by accidental means.

Guaranteed Purchase Option – guarantees that you may purchase additional life insurance in the future without proof of insurability

What is involved in the life insurance application process?

The life insurance application process consists of submitting an application and a medical exam to the life insurance company. It may also be necessary for the life insurance company to contact you for a brief telephone interview.

The medical exam can be scheduled at your home or work and is paid for by the life insurance company. The exam typically consists of medical history questions, blood/urine specimen, blood pressure/pulse readings, and height/weight readings. Sometimes additional requirements are necessary, such as an EKG. It is recommended that you schedule your exam early in the morning because test results are often better at this time.

Once we receive your completed life insurance application, it will be submitted to the insurance company. Underwriting usually takes approximately 4-8 weeks. Assuming your life insurance policy is approved, we will send it to you.

When does my life insurance coverage begin?

Your life insurance coverage begins once the policy has been issued and all of the delivery requirements have been returned to the insurance company. Delivery requirements may include a premium payment, statement of health, delivery acknowledgement form or amendment of application.

Temporary coverage during the underwriting process may also be available with some insurance companies. In cases where temporary coverage (also called conditional coverage) is available, coverage begins once the completed application has been returned to the insurance company with a premium payment and you have completed the medical exam. The coverage is contingent upon you qualifying at the rate you applied for and a few other factors. Read the conditional receipt of your life insurance application for additional information.

How is an applicant classified?

The life insurance company uses factors such as personal medical history, family medical history, financial situation, and sometimes avocation and occupation to place an applicant in a specific rate class.

What if I receive a higher rate than I applied for on my life insurance policy?

If you apply for life insurance through ReliaQuote and you receive a higher rate on your policy or you are declined, we will automatically shop your life insurance coverage with other life insurance carriers. First, we will identify (on a “no names” basis) other insurance companies that may be more liberal given the reason you received a higher rate or were declined. Then (again, without disclosing your name) we will send each of these insurance companies the information they need to make an estimate of the rate for which you would most likely qualify based on their particular underwriting criteria. Once we have received the alternative rates, you will be contacted by a ReliaQuote Customer Service Representative who will explain your options. You will have the opportunity to stay with the original life insurance carrier you applied with or submit an application to the alternative carrier who may offer a better rate.

One of the benefits of this unique service is that you do not have to complete another medical exam or application for us to shop you with other carriers! We simply use your first application and medical exam results.

What is the tax treatment of life insurance death benefit proceeds?

Life insurance death benefit proceeds are generally not subject to income taxation provided they are paid in a lump sum; however, there are a few exceptions to this rule. If a settlement option is used other than the lump sum option, then the interest earned on the principal death benefit is taxable.

Although life insurance proceeds are generally exempt from income taxation, they are subject to estate and inheritance taxes. For more information on estate and inheritance taxes visit the estate planning section.

Should I purchase life insurance on my spouse?

In most cases, yes. At the very least, if your spouse contributes to the family’s annual income then adequate protection would be needed to supplement his or her income should he or she die. If your spouse does not have an income but is a homemaker, then life insurance protection may be needed to cover daycare and other costs associated with the loss of a parent. Use our life insurance needs calculator for additional help on estimating the amount of life insurance your spouse needs.

Possible Aetna Move Prompts Focus on Urban, State Policies in Connecticut

Connecticut officials are again re-examining how they can dissuade companies like General Electric and now possibly insurance giant Aetna from relocating to places considered more innovative.

A string of state budget deficits, state and local tax policies, as well as hefty state debt obligations are all being blamed for why Aetna and others may be looking to places like Boston, Mass., to move their headquarters and attract talent. But many also are looking at the condition of Connecticut’s cities and how they measure up against the competition in other states.

“Our inactivity, our unwillingness to come up with an overall goal for our urban centers in the state of Connecticut is yet again costing us dearly,” said Democratic Speaker of the House Joe Aresimowicz on Thursday, the day after Aetna’s chief executive announced his company is in negotiations with several states to move its headquarters out of Hartford, where it has been based for nearly two centuries. He said major employers “want to know what our plan is” for Connecticut’s cities, adding how lawmakers may pass legislation this session that could lead to more state aid and stronger oversight of city spending.

Aetna’s possible move comes despite Connecticut Democratic Gov. Dannel P. Malloy offering the company financial incentives to stay in Connecticut. Aetna has not responded to the offer.

Mark Bertolini, Aetna’s chief executive officer, said the insurer remains committed to its roughly 6,000 Connecticut-based employees and its Hartford campus. However, he said the company wants to broaden its access “to innovation and the talent that will fill knowledge economy-type positions.” His comments come about a year-and-a-half after GE announced it would move its corporate headquarters from suburban Fairfield to technology-rich Boston, which chairman and CEO Jeff Immelt said fit the company’s ambitions as an innovation leader.

Hartford Mayor Luke Bronin said “losing Aetna’s flag” would be a blow to the state and greater Hartford. The Democrat said the state must now act boldly.

“I think the decision that Aetna seems poised to make, reinforces the argument that we’ve been making for the better part of a year, which is that if Connecticut wants to remain economically competitive, we have to be a place that has strong and vibrant cities – strong and vibrant metropolitan areas, where companies can attract talent and retain talent,” said Bronin, who has pushed for greater regional cooperation to bolster Hartford.

Oz Griebel, president and CEO of the MetroHartford Alliance, a regional business group, acknowledged Aetna is one of the state’s most valued employers and the image of the company moving its corporate headquarters elsewhere has a “psychological impact” on the state. But he stressed that major investments have been made in Hartford and other Connecticut cities. Steps are being taken to address the state’s fiscal obligations, such as employee retirement costs.

While the state’s cities are not as large as Boston or New York, he said Connecticut continues to have an educated and innovative workforce.

“The asset base here is very strong,” Griebel said. “Our job is to promote that asset base.”

Susan Winkler, executive director of the Connecticut Insurance and Financial Services Cluster, an association of 32 insurance and financial services industry leaders, said even if Aetna moves its headquarters, Connecticut will remain the insurance capital of the world.

“Connecticut has a rich history of insurance practice,” she said. “Our workforce is really second to none. We have the most insurance jobs, the most actuaries. We write the most premiums. We are the insurance capital and that’s not going away.”

The state also has a healthy pipeline of labor into the insurance and financial services industries from colleges and other sources, Winkler said. At 2.7 percent, Connecticut ranks first nationally in insurance carrier employment as a percentage of total employment. The average wage for nearly 59,000 insurance carrier jobs is more than $83,936, according to 2016 state industry report.

Associated Press Writers Dave Collins and Pat Eaton-Robb contributed to this report.

Moving Insurance Coverage Options for your Move

Occasionally, items can get lost or damaged in the moving process. So, in choosing the proper coverage to protect your possessions during the move, make sure to assess your needs before finalizing your protection.

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The three most common types of moving coverage are:

Basic Liability

Your items are usually covered at 60 cents per pound, per item – regardless of their actual value. So whether it’s your pens or your precious family heirlooms you’ll be covered based on the weight of those items.Cost: Usually Free

Declared Value Protection

An improvement over basic coverage, Declared Value Protection offers coverage for the replacement value of lost or destroyed items, minus depreciation. If your three year old TV is smashed during the move, the moving company won’t replace it with a new one. They may try to repair it to its original condition or you will be given the fair market value of the three year old TV.

Cost: Usually based on the declared weight, lump sum or per-pound value of your shipment, subject to certain minimums.

Extra Care Protection/Customer Transit Protection (Canada)

A high level of protection. If an item is lost or destroyed, most companies will offer the full replacement cost – regardless of the item’s depreciation. Ask about this option at full value or with a deductible.

Cost: Usually dependent on the value of the declared shipment.

Regardless of which plan is most appropriate for your circumstances, remember to ask your moving counselor to explain each alternative carefully. It’s also a good idea to review your homeowner’s insurance policy to determine whether or not it provides coverage for any especially valuable items such as crystal, antiques or collectibles during a move.

Short-Term Medical Insurance

It Could Save You from Ruin

Millions of Americans are uninsured today, many of who have lost their jobs and are first realizing the high cost of health care coverage that was previously provided by their employer. Rather than take on this new expense while unemployed, many are choosing to go without coverage all together – risking not only their health but also their financial well-being. What these individuals don’t realize is that affordable solutions do exist, such as Short-Term Medical Insurance.

The burden is on the laid-off worker to study health insurance options. The trouble is, many don’t realize they can choose to go the “short-term” insurance route. Short Term Medical insurance can help millions of people fill the gap between permanent health insurance plans, according to Raj Bal, Senior Vice President Specialty Products at Fortis Health.

So how to reduce debt? The answer isn’t rocket science– it’s just a dose of common sense mixed with a dash of will power. Here’s the recipe.

Continuing Coverage is Critical to Workers

“Continuing health insurance coverage is important for individuals and families, but sometimes with the high costs, they decide to go without, placing them at risk for financial ruin in the event of an unexpected major medical catastrophe,” says Bal.

One of the greatest advantages of Short Term Medical insurance is that it is a more cost-effective alternative to COBRA insurance (the coverage that employers offering group health coverage must offer by federal law). Furthermore, employer groups of less than 20 are not required to provide COBRA, so a large portion of small employer-based workers, along with the self-employed, do not have access to continuing coverage.

An Affordable Solution

Federal law requires that employers with over 20 employees, who also provide group coverage, offer COBRA to displaced workers. The coverage is costly, averaging approximately $3,000 for individuals and $8,000 per year for family coverage.

Short-Term Medical is a cost-effective alternative to maintain health care coverage at a fraction of the price of COBRA – typically about one-third the cost. The plans are designed for generally healthy individuals in a variety of situations. These include:

Workers who have been laid off or are in between jobs

Employees starting positions who are facing the health insurance “waiting period”

College students who are no longer covered under their parents’ plan following graduation

Employees in seasonal or temporary positions

Independent workers

Early retirees who have a short waiting period for Medicare

Speed Counts

Short-term medical insurance also allows the insured to choose the price of coverage based on the amount of the deductible in hand. (Note: short-term medical does not cover pre-existing conditions). As for speed, coverage (from companies like Fortis) can start as early as the next day.

Finally, and perhaps the most important of debt reduction strategies, develop a specific monthly budget for you and/or your family. This plan should address a plan of action that eliminates spending on unnecessary goods and services. This might include foregoing those Friday night pizzas, a few drinks at the bar, your premium cable package – or even that morning cup of java. Developing a clear picture of your financial situation will help pinpoint the areas where debt can be reduced, and with it, the financial stress in your life.

Millions Live Where Car Insurance Is Unaffordable, Study Says

MILLIONS of Americans live in areas where auto insurance is unaffordable, according to a new analysis from the federal government.

The report, from the Federal Insurance Office, analyzed premiums for basic liability automobile coverage in more than 9,000 ZIP codes with high proportions of “underserved” consumers, including minorities and people with low to moderate incomes. It found that rates were unaffordable in 845 of such ZIP codes, or about 9 percent of them. Nearly 19 million people live in the unaffordable areas, the report found.

The study defined “unaffordable” areas as those where the ratio of the average auto premium to household income exceeded 2 percent. Nationally, the average household spends about 2 percent of its annual income on auto insurance.

The Treasury Department, the insurance office’s parent agency, did not respond to requests for an interview about the report, which was published last week and did not make specific policy recommendations. The insurance office was created in 2010 by the Dodd-Frank financial reform law to study insurance markets, which are largely regulated by state governments.

Robert Hunter, director of insurance with the Consumer Federation of America, said that affordable auto rates were a big factor in economic mobility, since owning a car gives people access to a wider range of jobs. And most states set a minimum of auto liability coverage that people must buy.

“You need to make sure people have a chance to afford the insurance you require,” he said.

As the Consumer Federation noted, the report found that auto insurance was unaffordable for more than half of the underserved ZIP codes in five states: Michigan, New Jersey, Rhode Island, New York and Delaware. And close to half of the affected population identified by the study live in the tristate area of New York, New Jersey and Connecticut.

Industry groups have been critical of the insurance office, and they took issue with the report.

Robert Gordon, senior vice president of policy development and research with the Property Casualty Insurers Association of America, said the report suggested that car insurance was actually affordable in most areas. The study, he said, did not adequately address the effect of an increase in the number and severity of auto accidents.

Robert Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies, called the report “unnecessary and ill conceived.”

The National Association of Professional Insurance Agents, an industry group, recently called for the elimination of the insurance office.

Its national senior vice president for industry affairs, Patricia A. Borowski, said the study’s measure of affordability didn’t take into account the complex criteria used in setting rates. “Any assessment of auto insurance affordability should account for several other critical factors, such as the differences — most of them significant — that exist among all drivers as to their individual or collective household driving records,” Ms. Borowski said in a written statement.

The insurance office study is based on auto premium data that is publicly available or was voluntarily provided by states, but does not include all United States auto policies, the report said. The office said it expected to include more premium data from large insurers in future versions of the study, which it aims to update annually.

The report also cautioned that its analysis looked “collectively” at affordability in broad geographic areas, but was “not appropriate” for measuring whether a premium paid by any individual was affordable. The report included a state-by-state analysis.

Here are some questions and answers about auto insurance:

How can I find affordable auto insurance?

Tobie Stanger, senior editor with Consumer Reports, suggests checking rates by using online tools like TheZebra.com, which typically provides multiple quotes. “We would recommend that people shop around and compare coverages among a lot of companies,” she said.

Don’t assume that your current insurer is giving you the best rate. “Loyalty is not necessarily rewarded,” she said. It’s best to shop around for quotes fairly frequently, she said — at least every two or three years.

Also, your credit rating can affect your auto rates, so it’s best to pay your bills on time and check your credit report annually to make sure it’s accurate, she said. You can check your credit report free each year at www.annualcreditreport.com.

Are any discounts available?

Typically, having both an auto policy and a homeowner’s or renter’s policy with the same company will get you some sort of discount, Ms. Stanger said. If you have a teenager, having him or her take a driver’s education class may also help keep rates down. And affinity groups, like AARP or AAA, may offer discounted insurance to members.

Does the type of car I drive affect my insurance rates?

Yes, so you should take that into account when shopping for a car, Ms. Stanger said. Often, your insurance agent can provide an estimated quote for the make and model of car you want to buy before you purchase it.