Term Life Insurance Questions and Answers
I want to talk to you about some common term life insurance questions and answers, and there's a lot more information on our website and on our blog, bestlifequote.com. You can check out the blog and you can also get quotes there. So let's talk a little bit about some common questions, as well as answers to questions about term life insurance.
So, first question, "Can the life insurance company cancel the policy for any reason?" Other than nonpayment of your premium, life insurance policies are generally non-cancellable. This means that the life insurance company can't cancel your policy. So this is something that most term life insurance companies have and you can look and read this in the policy to make sure that it's non-cancellable.
Next question, "Are there situations where the life insurance company wouldn't pay the death benefit?"
So, generally insurance companies pay the death benefit. But there are a few times where they don't. So, most policies do have some causes for nonpayment. As an example, if you commit suicide in the first two years, it is one year in some states depending on the law, or if you die while committing a crime. So don't rob a bank and die because your family won't get the life insurance money.
Or if you make a material misstatement, so you lie on your application. Let's say you said you were a nonsmoker and they find out you're a smoker, or you lied about something. You knew you had cancer and you left that out. In those cases your death benefit may be denied. A material misstatement is essentially knowingly lying on your application.
"Is my policy renewable at the end of the term?" So you buy a 10, 20, 30- year policy. What happens at the end of the term? So, generally the price is locked in during the term. But you can continue the policy. It's called guaranteed renewable. The price will adjust based on your age. So it will increase, but you generally can continue the policy and it's guaranteed renewable. Most term policies are usually renewable until age 95. Some are 90.
Depending on the life insurance company you can continue the policy until that age. So, yes, you can continue the policy and you don't have to qualify by having a health exam. So even if you're not healthy you can continue the policy. "Does a term policy provide living benefits?" So we all know you get a death benefit if you die. But there are riders that provide living benefits. For example, there's a Terminal Illness Rider which is included in most policies which allows you to access a portion of the death benefits while you're alive if you become terminally ill.
So if a doctor says you have, let's say, less 12 months to live, you can typically access with many companies up to 50 percent of your death benefit, usually up to a maximum amount like $250,000 while you are alive, and you can use it for any reason. There are also riders that you would pay for additionally. For example, if you wanted them, a Waiver of Premium Rider would waive your premium payments in the event that you got disabled. So that's another example of a living benefit.
"Can I increase the term length of my policy in the future?" So while you can't go from, let's say, a 20-year term to a 30-year term policy what you can do is you can convert a term policy to some form of permanent policy with most companies typically during a certain period of time. So, for example, many companies you can convert the policy in the first 20 years up until age 70, whichever comes first, to some form of permanent policy that they offer either a universal life or a whole life policy. But you can't just go from a 10-year to a 20-year unless you buy a new policy and replace your existing policy. "Can I cancel my policy in the future?" So, yes, you can cancel a term policy at any time. There are no penalties. You just call the insurance company up or stop making the payments and there's no penalty for terminating a policy at any time.
Another question here. "How will my family be taxed on the life insurance death benefit they receive?" So right now, based on the current tax law and it's been this way for many, many years, life insurance proceeds are income tax free. So your family would not have to pay income tax, and unless your family is subject to estate tax, which means you would have to have a high net worth, then if the policy is not owned outside of your estate, if it's owned by you personally, there may be estate taxes that are included on the policy. But that applies to, right now, estates that are higher than $5 million, and you can get around that by having a trust own the life insurance policy. For most people that's not going to apply and for most families the life insurance proceeds are going to be income tax free.
"What happens if you miss a premium payment?" So most companies will obviously notify you. They'll send you a letter and they'll give you some sort of a 30-day grace period to make up the payment. But of course, if you keep missing payments they will cancel your policy. If you don't make that payment in the grace period they will cancel your policy, and then you'll need to apply to reinstate the policy, which many times is like applying 1all over for a new policy.
"What is the process for my family to file a claim?" So your family typically can call your life insurance agent or you can call the insurance company directly. They'll ask them to either fax or email, or mail in a copy of the death certificate, and then generally companies will process the payment right away. You can expect between three and seven days to be able to either get a check mailed out or sometimes they'll be able to wire the money right into your bank account. "Can I change my beneficiary at any time and how do I do it?" So, yes, you can as long as you're the owner of the policy. You can change the beneficiaries at any time. All you need to do is fill out a form, and again get it over to the insurance company and they're going to make that change.
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