Looking to buy life insurance? But you don’t know the right life insurance questions to ask your agent? Don’t worry! Here is a detailed guide that can help you buy the right life insurance.
If you thought buying car insurance is complicated, wait till you get in the market to buy life insurance. It can be quite complicated, especially when agents make everything sound so good.
However, if you know the important life insurance questions to ask, you can find the best policy for yourself and your family.
Many people do not fully understand the underwriting of their life insurance policy. The ramifications of that can be horrific.
On the other hand, many people get too intimidated and often refrain from buying at all. As a result, less than 60% of Americans have life insurance. You don’t want to end up being another financial statistic.
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Life Insurance Questions to Ask
To make things easier for you, here’s a list of questions to ask anyone selling you life insurance. You should also have some idea about what answers to look for.
This information will help you save money on life insurance.
What type of insurance agent are you?
This question is about the agent, rather than life insurance.
There are normally two types of insurance agents: captive and independent. A captive agent works for a particular insurance company, whereas an independent agent does not directly work for any insurance company.
This distinction makes a ton of difference for you as a customer. An independent agent might be able to give you objective information about a plan. Since they do not have any affiliations, they can offer you variety in terms of life insurance providers.
Are you licensed to sell life insurance?
Life insurance scams are pretty common. Whether you call an agent yourself or someone calls you, make sure it’s not a call center agent. That could very well be a scam to obtain your credit card information.
You want to make sure that you work with a licensed agent. They have the training and education to sell these policies. Therefore, they can better inform you about what your options are.
How many companies do you work with as life insurance agents?
Independent agents can work with just a handful of companies. So you want to know how many companies they work with to provide customers with life insurance policies. Any number over ten should be enough to give you ample choices.
Even if the agent works with just a few companies, it’s still better than just sticking to one company. You can always ask for more information about the companies.
For instance, where they are based and how many years they have been in business.
What kind of coverage is available?
This is one of the most common life insurance questions, and answers can be one of the two types of coverages: individual and group life insurance.
If you’re buying life insurance on your own, you’ll most likely be buying independent life insurance. This is because group life insurance is usually offered by employers.
It’s called group insurance because it covers a lot of people.
For group insurance, a small premium would get deducted from your salary. However, getting this policy is a little bit easier than getting an independent one.
For independent policy, you might have to go through medical tests.
The biggest benefit of an individual policy is flexibility. You can move to another job without worrying about what implications it might have on the life insurance policy.
How much life insurance should I go for?
If you want to know how to choose the right life insurance plan, you have to think about how much the insurance will provide. You want to make sure that you’re not underinsured nor overinsured, as you will end up paying a lot more than you need to.
Your agent should ask you questions about your family and yourself to help determine the right insurance amount. You want to protect your family, so the insurance should have enough money for them in case of your death.
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How will the insurance be determined?
This is an extension of the last question as it covers the factors your agent would use to calculate the right insurance amount for you.
Most companies factor in the dependents and mortgage debts when calculating the insurance amount. However, some companies also use other data.
Your agent should explain to you what factors were used to compile the amount. This is important, especially considering the debts you already have.
Your future financial needs should also make the equation so that you have an appropriate amount adjusted for inflation in the future.
How long will it take to get the life insurance policy?
You cannot get life insurance in a single day.
The approval time varies by companies, and more specifically, the plan you choose. You should ask your agent how long can you expect the policy to get approved and go into effect.
Usually, policies that require medical examination take the longest to get approved. It could take up to a month to a month and a half for the process to complete.
You should also ask for faster options if there are any. Usually, it’s the plans that do not require medical tests.
Is there a tax any on insurance payout?
You should know beforehand if there will be any tax implications on the insurance money when you’re gone. Usually, the insurance money is paid to the beneficiary without any tax deductions. However, you need to make sure that that is the case for your policy.
Some people may have to pay taxes. This is usually the case with high net-worth individuals that may also have to pay estate taxes.
That’s another complication that you need not worry if you’re not a high net-worth individual.
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What exclusions are there in the policy?
This is one of the must-ask life insurance questions as you want to ensure what type of death is not covered in the policy. Most life insurance policies have exclusions for suicide and death in combat.
If you’re serving in the armed forces, you may want to look for a plan that does not include death during the war as an exclusion. Make sure you ask about the exact underwriting of the policy about exclusions. Think about this and how it fits within your personal financial plan.
Will the premium change over time?
Usually, the premium is fixed for term insurances. However, some companies formulate insurance policies where premiums may increase after a certain age. This is usually when you cross 60 years of age.
Your agent should give you a breakthrough in the premium payments over time. You should make sure that the premium is level in the underwriting of the policy.
In some cases, it may be worth going for an increase if the policy is sound, and the insurance amount is way higher than what you would end up paying in premium over an average life span.
Is there any Accelerated Death Benefit?
The Accelerated Death Benefit counts as a living benefit. Many life insurance plans have this feature without any additional cost. This basically allows you to avail of the insurance in case of a terminal illness.
What other living benefits are there?
Living benefits are those advantages that you can claim while you’re alive. This could be borrowing money against the policy.
You should ask whether you can take out money, how much, and on what conditions. Also, how long will it take to get this kind of benefit?
This question should also help you understand how much control you have on the policy as the owner. In short, you want to know about three things: liquidity, equity, and use.
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Can I change or upgrade the policy?
This is one of the most important questions to ask about life insurance because your circumstances can change. If you’re going for a term life insurance policy, you may want to have the freedom to convert into a permanent one.
You should also ask the agent if you can upgrade the policy in any manner.
Whether you can add or remove a beneficiary.
How much more money will it cost to upgrade to a permanent one?
All these questions can help you avoid extra costs regarding your policy in the future.
Does the policy adjust the death benefit for inflation?
You may think $100,000 is a lot right now, but 30 years down the lane, it might not be much.
This is where inflation adjustment kicks in. You want to make sure whether your policy automatically adjusts for inflation or not. Some companies might offer this as an additional expense.
The agent or company should tell you what they can do about adjusting the benefit amount for inflation.
This is all the more important if you’re buying the policy at a young age. One of the reasons why life insurance is important is because your savings today may not be much in value by the time you die.
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What if I miss a premium payment?
You want to know about the grace period for making a missed payment. Life is pretty uncertain, and you might miss out on a payment, whether by mistake or simply because you do not have the money. You do not want to lapse your life insurance policy.
Find out how long the grace period is and if there’s any penalty on late payments. Typically, the grace period for life insurance premium payments is 60 to 90 days.
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What if I don’t die within the term of the insurance policy?
If you have a permanent policy, you do not have to worry about the policy being void. However, when purchasing a term policy, this should be one of the first questions you ask.
You want to know what would happen if you near the end of the term and don’t die.
Unfortunately, most term insurance policies do not pay back anything if you do not die before the end of the term.
However, as the term nears its end, you may have the opportunity to keep the insurance, provided the company provides this option.
Ask your agent what options you have to continue the policy if the term expires before you. More importantly, ask what it would mean for your premium. In most such cases, the premium usually increases.
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What about disability?
Having a disability can drastically change your life. It could also mean you not being able to work. Ask your agent if the policy would provide any relief in case of a disability.
Some companies might provide a disability premium waiver.
One important thing to ask here is what defines disability for the company. You should be clear on what kind of disability would be qualified for the company you are purchasing the policy from.
Asking the right life insurance questions can save you from a lot of trouble. You need to be even more detailed when buying term insurance. You do not want to wake up after your term ends to find out you’re getting nothing out of the policy.
Whether you consult an agent or approach a company directly, these questions will help you save money by allowing you to pick the best value life insurance policy.
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