Questions You Shouldn't Be Afraid to Ask About Term Life Insurance

The only dumb question is the one you don't ask. 

You've heard that before. Having taught at local universities for more than 20 years, I don't like that statement and it's not so. There are no dumb questions! Period! If you feel the need to ask a question, about anything, the answer is important to you. That's all that matters.

You may have a reluctance to ask questions about life insurance coverage. You don't want to appear to be uninformed but having the answers, the right answers, makes you a smarter consumer and leads to a better choice about your coverage.

Here are a few questions you might have:

Don’t I have life insurance through my employer already?

You may have. Check with the benefits administrator. Even if your company offers the best plan ever, you’ll lose it once you stop working there. You may have the option to continue the coverage on your dime but is it affordable?

That doesn’t mean you should forego life insurance offered by your job. Coverage is coverage and, even if you already have life insurance, your employer’s plan can certainly serve as a supplement. 

Wait … I have to take a medical exam to get a life insurance policy?

Maybe. A medical exam is almost always part of the traditional life insurance underwriting process especially for amounts of coverage over $500,000. Below those limits, many carriers offer accelerated underwriting. No medical exam and quicker approvals. Insurers also offer "simplified issue" policies which eliminated the need for a medical exam. Sounds good until you compare premiums which are much higher for this type of policy

Why do I need to take a medical exam?

Because your prospective insurance company wants to get an idea of how risky you are to insure — or, to put it bluntly, how likely you are to die during your policy’s term. They do this whole "classification" thing that ultimately determines your premiums.

What’s this medical exam entail?

It’s comparable to a basic physical. Known as a "paramedical" The insurer’s testing company will take your vitals (pulse, height, weight) and a blood sample. Sometimes they’ll ask for a urine sample, too, or administer an EKG. The insurance company picks up the tab for this. The technician will typically come to your house or office. And, perhaps more importantly, a third-party diagnostic company is testing you — not the insurance company itself.

What are these testing companies testing for exactly?

Basically they’re testing for things like high blood pressure, glucose or cholesterol and the presence of nicotine. Oh! — they’ll also look at your body mass index (BMI).

What about smoking? Would quitting help?

Quitting cold turkey right before a paramedical exam won’t help at all because signs of nicotine stay in your blood for over a week and in your urine for almost a month — and the testing company is taking samples of at least one of those things.

In addition, a history of smoking can still cost you. How much depends on the date of your last tobacco use and how often you were smoking them. The good news is some insurers will re-classify you for lower rates if you can prove smoking cessation.

Can you explain all this classification stuff?

There are six major life insurance classifications, listed here from best to worst: Preferred Plus, Preferred, Standard Plus, Standard, Substandard and – you guessed it — Smoker. Where you fall depends on a whole bunch of health and lifestyle factors. You know: what’s your BMI? Do you drink regularly? Have you ever been treated for a serious illness? How often do you skydive? (Really.)

So will a prior or family history of illness also drive up my insurance premium?

Maybe, but you shouldn’t keep that history a secret. You will be asked about your parents and siblings. Are they still living? What age did they pass away?Have they ever been diagnosed with certain conditions and if so, at what age?

What’s an underwriter?

An underwriter works for the insurance carrier and is basically tasked with figuring out how risky you are to ensure — or what classification you belong in. As we mentioned, they’ll look at your paramedical exam results, medical records and even your motor vehicle reports. 

What happens if I lie to the underwriter and they find out?

In a best-case scenario, all of the quotes you’ve been using to comparison-shop will be straight-up wrong and you’ll get offered a higher premium. In a bad-case scenario, you’ll get denied coverage or, if the lie was discovered after the fact, the policy will get canceled. In a worst-case scenario, your death benefit won’t get paid out.

What’s a death benefit?

The death benefit is how much the life insurance policy pays to your beneficiary, untaxed and in a single lump sum, should you die. That amount is considered the "face value" of the policy. Before you ask, "face value" is a fancy way of saying how much your policy is worth. And, just in case, your beneficiary is the person you designate to receive the death benefit. Many insurers also offer "living benefits" or "accelerated benefits" should you be diagnosed with a terminal or critical illness. This means you can opt for the payout before you pass away.

What is term life insurance?

Term life insurance is a policy that covers you for a fixed period of time. So, if you die during the term, your beneficiary gets the death benefit. Permanent life insurance, on the hand, covers you permanently. Your beneficiary is still entitled to the death benefit when you die, but there’s also a cash value component you can borrow against or partially cash out after a period of time.

Who should be my beneficiary?

You’ll have to carefully consider all your options and decide what’s best for you and your family. I can tell you, though, that it’s possible to have multiple beneficiaries, so there’s no need to sweat picking between your children. Also, you can update your beneficiaries regularly. 

Last question: How does the insurance company know I died?

Good question. Your beneficiary has to file a claim. They’ll need to fill out a claim form and send the insurer your death certificate and policy document. 

Did I answer all your questions? If you think of any more just drop by sometime.