Term vs Permanent Life Insurance
There are many different types of life insurance. The two main ones are term and permanent. Permanent is meant to last for your whole life and Term is meant to cover you for a specified number of years.
Permanent Life Insurance
Permanent policies allow for cash value to accumulate through dividends paid by the insurance company based on current interest rates and other market factors.
There are also different types of permanent policies such as Guaranteed Universal Life, Variable Universal Life and Indexed Universal Life. The differences between these policies basically comes down to how the money is invested.
The important thing to understand in preparing to meet with an agent is not the distinctions between the different types of permanent policies, but whether you want a Permanent policy or a Term policy.
Generally speaking, Term policies are less costly because if you outlive the term they are worth nothing. So their principal purpose is to provide a life insurance benefit to your heirs if you die sooner rather than later. Someone who wants to leave a cash payment to beneficiaries if they should get hit by the proverbial truck within the next couple of years should consider a term policy. You are basically betting against your own longevity.
With a Term policy, when the term ends and you are still around, the premiums to renew it, if you can do so at all, may be prohibitive.
On the other hand, if you want to provide some additional cash to your beneficiaries whether you get hit by the truck next week or you live to be a hundred, you probably are better off with a Permanent policy.
Common Issues Involving Life Insurance
- Is the insurance intended to last for the rest of the insured’s life or is it intended to end after a set number of years.
- Is the policy supposed to have a value that can be given or loaned to the insured at some future point, or are the premiums simply the price paid for the product for the period the policy is in effect?
- Are the benefits adequate for the purpose for which the insurance is being purchased?
- Are the beneficiaries correct, complete and up to date?
- What are the tax consequences of the way the insurance has been set up and the type of policy it is?
- Are there/should there be any contingent beneficiaries?
- What is the value of the entire estate in question?
- Can future premiums increase substantially?
- Are there any potential problems with the answers given to the Application Questions?
- Will the benefits cover your assets and liabilities?
- Will your age and health affect the policy premium or benefits?
- Is it necessary to update health-related information over the life of the policy to avoid problems for beneficiaries?
- Does the policy benefit amount take into consideration inflation? If not, can it be adjusted later?
Specific to Life Insurance
Most insurance have a very simple process for filing the death claim. Problems that come up usually relate to either an issue concerning the accuracy of the person’s application submission or to questions about the cause of death. Be cautious about details that may change over a lifetime.
Many policies and some states prohibit such actions – known as retroactive underwriting – if the insureds supposed statement was made X years before. The policy is deemed is not to be contestable based on inaccuracies in the application because of the time that has expired since the application was submitted.
The only other way to fight this is through the testimony or credible statement of a witness to the original conversation.
Cause of Death
The other issue – cause of death – can also be a difficult one. It tends to turn on the testimony, if available, of a medical expert witness. As with the application issue, cause of death issues can be time barred against the insurer.
If you are unable to resolve the claim with your insurer, suggest mediation through First Mediation, JAMS or a similar organization.
When the matter is resolved, put the settlement agreement in writing.