Life insurance has been around a long time, and just about everyone knows what it is and what it does. Yet, there are still a lot of widely-held misconceptions about life insurance. For example, many people don't buy a life insurance policy because they grossly overestimate how much it's going to cost. Once they get the facts, people are surprised to learn life insurance is very affordable for most Americans.
Cost aside, people tend to have many questions about this important coverage, many of which they hesitate to ask anyone in person. If you're still on the fence about buying life insurance to protect your family's financial future, here are six common questions about life insurance – and their answers – that may change your mind.
Am I too old to buy a life insurance policy?
In most cases, the answer is no. If you’re under age 80, you can still purchase a term life insurance policy, which is designed for people who only need coverage for a specific period of time. Term insurance is a good way for people in the later years of life to cover funeral and burial expenses when they die, or to leave money to a spouse, children or grandchildren.
Although term insurance is usually the cheapest form of life insurance, the monthly premiums will still cost more the older you get. That’s why financial advisors recommend purchasing life insurance early in life when you’re young and healthy, and to hold on to it for as long as you need it.
Am I too overweight to buy life insurance?
Weight is only one of the many health factors that insurance carriers evaluate when you apply for a life insurance policy. If you’re moderately overweight, you can still qualify for a life insurance policy at reasonably favorable rates. If you’re obese, which is defined as an adult with a body mass index (BMI) of 30 or higher, you can expect to pay more for your coverage.
Regardless of your weight, some agents recommend that you lock in coverage as soon as possible in case something unforeseen happens. If you lose weight, you can always ask the insurer to lower your rates later.
Can I buy life insurance on someone else?
It depends on the circumstances. You can buy life insurance on someone else, and even list yourself as the beneficiary, if you meet two conditions. First, you must have an "insurable interest", which means you have a legitimate reason for buying the insurance, such as a personal or business relationship that would cause you to have a financial interest in the continuing life of the person you want to insure.
Second, the other person must know of your intentions and give their consent, except when purchasing a policy on your own minor child. Most insurance companies require a medical exam on the person being insured, and even when they don’t they need the signature of the insured. So it would be hard to insure another person without them knowing about it. In the unlikely event you managed to pull it off, it would be considered insurance fraud.
Can I leave the proceeds to anyone, even if I'm married?
You can leave your life insurance policy proceeds, called the “death benefit,” to whoever you'd like. However, if you live in a community property state, your spouse may be entitled to a share of the proceeds. If this is something you might want to do, an experienced estate attorney can answer any questions you have in this area.
Are life insurance proceeds taxable?
Generally speaking, no, which is one of the real advantages of life insurance. If you die while the policy is in effect, the proceeds paid out are not taxable. Although the death benefit isn’t taxable, earnings from your life insurance policy, whether in cash value or interest earned in a beneficiary account, are often subject to taxes.
How fast are life insurance policy benefits paid out?
Most insurance companies pay out benefits within 30 to 60 days of the claim being filed. They can ask for additional information if needed, and in some cases there can be delays. For example, if the insured dies within the first two years (contestability period) after the policy is issued, or if the death occurred under suspicious circumstances, the insurer may delay payment in order to learn more about the cause of death.
A life insurance policy is an important tool to protect your family's financial future. Get started today with a simple needs assessment, or try our term life calculator now.