Group Term Life insurance – a very important benefit to employees and their families

Group Term Life insurance is often a tertiary discussion topic during a typical benefits strategy session.  Most employee benefit decision makers focus on health insurance due to issues arising from healthcare reform along with the ongoing challenge of managing increasing premium costs.  Dental is a close second as many employees focus on the immediate high costs of dental care for themselves and their families.  The life insurance program generally falls farther down the discussion list and can sometimes become an afterthought.  It’s important to not let that happen as research shows this program is a very important benefit to employees and ultimately, their families.

Every six years, LIMRA  conducts a life insurance ownership study to provide detail on the status of the life insurance marketplace.  Their last study completed in 2010 found that:

• Only 44 percent of U.S. households had individual life insurance.
• Thirty-five million households had no life insurance coverage, which was an increase of 8 percent from 2004.
• Eleven million households with children under age 18 had no coverage.
• Four in 10 households with children under 18 said they would have immediate trouble meeting everyday living expenses if the primary breadwinner died today.
• Almost 8 in 10 U.S. households currently do not have a personal life insurance agent or broker to turn to and most of them say they never did.

These facts showcase an alarming challenge for many of your employees and their families.  Life insurance is not a priority yet the financial implications of not having the coverage are potentially overwhelming.

Having a well designed group term life insurance program provides employees with a much needed financial umbrella that many cannot or will not consider purchasing on their own.  It’s typically low cost to most employers with the potential for multi-year rate guarantees and can be structured to fit the many varied needs of any workforce.  Flat dollar benefit amounts are common along with a percentage of salary approach.  Combining the employer paid benefit with an additional voluntary life program on either a term or universal life platform will show a workforce how much you care about their individual needs.

If you haven’t spent much time on this program during your previous employee benefit review sessions, I recommend that you do so going forward.  You’ll gain a lot of employee appreciation for very little cost.

How Your Heart Health Will Affect Your Life Insurance

It is very common for people applying for life insurance to receive a low quote.  Then, after their required medical exam, they are given a new quote based on risk factors they didn’t know existed. In many cases where the premium quote jumps, it is because the person applying has heart disease risk factors.

Heart disease is a leading cause of death in the western world.  There are many factors which put you at risk of having heart disease, including:

• High blood pressure

• High cholesterol and/or triglyceride levels
• Obesity
• Smoking

Even if you have high blood pressure or cholesterol, don’t panic that your life insurance premiums are going to be outrageous.  Many life insurance companies will still give you the preferred rate so long as you only have one or two risk factors AND also can show you are making efforts to keep them under control.

What is Considered Unhealthy?

In general, a healthy cholesterol level is considered to be no more than 200, with LDL cholesterol levels no more than 100.  As for blood pressure levels, healthy is generally considered no more than 140/90.  Keep in mind that these standards change throughout your life and are also based on your gender.  For example, a man and woman may have the same cholesterol levels but only one considered to be at unhealthy levels.

The insurance companies are not using the same standards to diagnose health as medical doctors.  You don’t have to have diagnosed hypertension for the insurance company to consider you at risk for heart disease.  However, you are probably not going to be charged higher premiums unless you have a diagnosis.  If you have gotten a diagnosis of high blood pressure or cholesterol, then it is very important that you follow all of your doctor’s instructions about taking medications and getting follow-up care.  In most cases, life insurance companies will not charge higher premiums if you take steps to keep the condition under control.

Always Tell the Truth

If you already have been diagnosed with heart disease risk factors like high blood pressure or high cholesterol, you must tell your life insurance company about this when applying.  Lying about these conditions could put your policy in jeopardy.  Plus, the life insurers are likely to find out anyway during your required medical exam.  Some life insurance companies even look favorably on people who are already taking medications for their conditions.  They realize that people actively taking measures to keep themselves healthy are less likely to develop heart disease than those who aren’t.  After you disclose your health status, you life insurance premium may be higher than what you were initially quoted but you should still be given a standard premium.

Convert Your Term-Life into Whole Life or Universal Life Insurance Policies

There is a paradox about life insurance policies.  The people who most need life insurance are young couples starting families.  While these people will qualify the best life insurance rates, they are often too financially strapped to invest in life insurance. By the time that they are financially able to make the investment, they will not longer qualify for the best rates.  One of the best – and most often overlooked – solutions for these people is to purchase term life insurance and later convert it into whole life or universal insurance.

Term life insurance is much cheaper than the other types of life insurance, but it is very limited in that it only offers coverage for a  set time period, usually 10-30 years.  Even if your term has not yet run up, you can still usually covert the policy into a life insurance plan which covers you until death.

The main benefit of converting your term life insurance policy into whole life or universal life insurance is that you will not have to go through any examination process.  If you were healthy when you bought the term life policy, you will get a policy based on being healthy – even if you have had serious health complications since then.  Converting from term life insurance is as easy as signing your name on a check.

Another thing that many life insurance policyholders don’t realize is that they don’t have to convert their entire term life policy at once.  If you are only financially able to convert a small amount at a certain time, you can opt just for that amount.  This allows you the freedom to grow your investment as your assets become available.

For those who don’t convert their term life insurance policies to permanent ones, the premium price is going to jump to keep the policy open.  Buying another policy after your term life insurance has lapsed can be difficult if your health has gone downhill. That is why it is so important for you to consider the long-term picture when you purchase term life insurance.

If you are just now looking into term life insurance, it is important to consider whether you will benefit from converting it to whole or universal life insurance later.  If so, then you must make sure that the policy is convertible. Almost all term life insurance policies can be converted but don’t assume it.  Also, see what the deadline is for conversion.  Even though you will still be given the same health status as when you bought the term life insurance policy, the insurance companies will consider the fact you are aging.  The longer you wait to convert the policy, the more expensive it is going to cost.

Most people look at term life insurance as short-term, cheap solutions for providing that security you need.  But don’t just opt for the cheapest life insurance policy you find.  You will want to make sure you are getting a high quality policy and that the quality parts of the policy can be converted to whole or universal life insurance in the future.

Overview of the Main Types of Life Insurance

Life insurance has expanded greatly in the past decade.  Now, people have many more options available to them when shopping for life insurance.  Here is a quick overview of the types of life insurance available.

Term

Term life insurance is the most popular type of life insurance because it lets policyholders buy large coverage for the lowest premium (compared to other types of life insurance).  The policy is only valid for a certain term and the policyholder pays a fixed rate during this term.

Whole Life

Whole life insurance covers you until the moment of your death and the rates will not change during the entire time.  The life insurance companies will use your premiums for investments and may offer a guaranteed return on the investment.

Universal Life

Universal life insurance will keep you covered so long as you continue to pay the premiums. There is also an investment aspect of universal life insurance.  The beneficiaries of the policy will receive the value of the policy and may also receive the value from the investments.  With universal life insurance, the value of the policy can change depending on how the investments are valued.

Variable Life

Variable Life insurance is like universal life insurance but policyholders have more options when it comes to investments.

Blended Life

This type of life insurance policy is a combination of term and whole life coverage.  Any dividends which the policyholder pays will go towards turning the term life insurance into whole life.

Term Universal

Term universal is a fairly new type of life insurance which combines term and universal life.  There are more choices and flexibility with term universal, especially in that you can lengthen the duration of the term even once you are in the policy.

Business Life Insurance

Business life insurance protects a company, not an individual.  The “death” of the company can occur when a crucial member of the business dies or becomes ill, when a disaster occurs that harms the business, or so forth.

Critical Illness Insurance

Critical illness insurance is becoming more popular recently.  It gives a lump sum amount in the event that the policyholder is diagnosed with a critical disease, such as cancer. The money can be used for various purposes, such as paying medical expenses or compensating for lost wages.

Guide to Your Life Insurance Contract

Some insurance forms have become standardized, like your property insurance, but there is still no standard form for life insurance.  This means that you have to be even more careful when going over all of the details of your contract to make sure that you are getting what you need.  While reading your life insurance contract can be mundane, it is important that you go through it all, especially all of that fine print.

Parts of a Life Insurance Contract

Your life insurance contract will include:

• A cover page with the name of the insurance company, the life insurance plan offered, and also states that you have 21 days to opt out of the policy in the event of dissatisfaction.  The cover page will be signed by an agent at the insurance company.
• A complete list of benefits and specificities including how much benefits, the premium costs and class, premium number, and insured’s name.
• A table which shows estimates of future values of the life insurance (such as with universal life insurance policies)
• A glossary of terms
• An outline of your rights as the policyholder, such as converting the policy, changing the beneficiaries, receiving the money value of the policy, or borrowing against the policy
• An outline of how beneficiaries can make claims
• Any rider or endorsement to the policy
• All provisions of the policy

Policy Provisions

Even though there aren’t any standard forms for life insurance policies, there are some provisions which are required by state law.  Even in the states which do not require these provisions, the life insurance companies will usually still include them.  They may include:

• Entire Contract: This provision delineates that the entire policy and application must be appended together.  This is to protect the insured person in case the insurance company attempts to claim that you misrepresented yourself during the application process.
• Incontestability: This provision of the life insurance policy states that the policy cannot be questioned once it has been in place for two years.  Even if you made a mistake on the application or the insurance company finds out that you misrepresented yourself, your beneficiaries will still be entitled to the policy benefits.
• Misstatement of Age: This provision is an exemption to the aforementioned incontestability.  An insurance company does not have to pay out your policy if you misstated your age, regardless of the time which has passed since the policy went into action.
• Reinstatement: Reinstatement has to do with whether or not you will have the right to activate your policy again if it has lapsed, such as from nonpayment. This provision will outline the specific details of reinstatement, if available.
• Suicide: Virtually all life insurance policies have a provision for death by suicide. In most cases, the policy will not be paid out if the insured dies through suicide within 2 years of taking out the policy, though the company will be responsible for paying out all premium costs paid thus far.

Life insurance is a misnomer because it is typically only paid out after your death.  Yet, there are some cases in which life insurance benefits can be paid out while the insured is still alive.  One of these situations is withaccelerated death benefits.

Accelerated death benefits is a rider which is attached to your life insurance policy.  Under the terms of the accelerated death benefits, your beneficiary will be entitled to all or part of your benefits if you become terminally ill.  These benefits figure became available in the late 1980s with the AIDs epidemic but have now expanded to include many other terminal illnesses, such as late-stage cancers.  Your beneficiary may also be entitled to accelerated death benefits should you become confined to a nursing home or will die without intensive care.

As expected, there are some strict clauses in the accelerated death benefits, such as the diagnosis, the length of prognosis, and whether the illness is incapacitating.  There is no standard form for accelerated death benefits and only about 200 insurance companies currently offer the coverage.  In some cases, the life insurance company may offer the benefits with their standard coverage but most will make you pay an additional premium for the rider.

Before you choose a life insurance policy with accelerate death benefits, consider whether it will affect your Medicaid benefits.  The accelerated death payouts could be considered as income and thus change whether you are eligible for Medicaid.  The accelerated death life insurance benefits could also be taxable and create difficulties for your beneficiary.

If you are worried about providing for your loved ones or paying expenses in event of a serious medical problem, you should be aware that there are also other life insurance options available to you which can be paid out before death.  With critical illness life insurance, you get paid a lump, tax-free sum in the event that you develop a critical illness.  Each insurance company defines critical illness differently but the major, debilitating illnesses are usually covered, like cancers and strokes.

Critical illness coverage is a separate life insurance policy whereas accelerated death benefits are a rider in your main life insurance policy.  Critical illness coverage also gets paid out in full whereas usually no more than 80% of the accelerated death benefits will be paid out.  Critical illness life insurance is also more likely to cover a wider range of medical problems, not just the conditions which are terminal or leave you completely debilitated.  However, critical illness insurance will cost more than the accelerated death benefits rider.

Just because your life insurance company doesn’t directly offer accelerated death benefits, don’t refrain from asking about them.  You may be surprised at how little is can cost to add the rider to your life insurance policy and give yourself a piece of mind should you become terminally ill.

How to Determine Your Insurance Score

You are in good health, relatively young and don’t engage in risky behaviors.  Yet, when you applied for life insurance, you got one of those dreadedadverse actionletters in the mail telling you that you did not meet their insurance score for the lower premiums.  We know that insurance companies look at factors like age, weight, and health when determining our insurance score – but the reality is that it is much more complicated than looking at your medical reports.

When you get an adverse action letter in the mail, there will be a toll free number at the bottom of the letter which you can call to get a free copy of your credit report.  Just getting this report is a long process and entails you sending personal information through the mail.  You may want to skip this process all together because you will just end up with your credit score, NOT your insurance score.  According to the insider experts, your credit report actually influences your insurance score.

The life insurance companies will be factoring in the amount of debt you have, your history of payments, how long you have had credit, the amount of credit which is in revolving loans, and many other financial factors which seemingly have nothing to do with your likelihood of dying.

Here is the logic behind this strange link between your credit and insurance score: the insurers assume that you are more likely to file an insurance claim if you have a large amount of debt or regularly take out debt. There are apparently studies which back up this logic.

Credit history certainly isn’t the only factor which is going to influence your insurance score.  All of those health aspects are also going to have a major influence on your insurance score as will some other factors, like whether you have any speeding tickets. There are so many factors to consider for the insurance score, and they are each weighed differently with insurers, that it is impossible to get a clear idea of how you stand.

Before you get too caught up in the idea of a perfect insurance score, you should realize that only about 1% of applicants are eligible for the best life insurance rates.  The life insurance companies are always going to quote you a low premium to draw you in.  Then, they will later give you the higher premium based on the insurance score and some new illusive information they found out.

The reality is that you probably can’t do much to change your life insurance score.  By the time you get your credit history in order and get your health is shape, you will have gotten a few years older and the premiums will again rise for you.  Just take comfort in the fact that not many people are perfect in the eyes of life insurers and expect the premium to be higher than what was quoted.

Cases When Your Life Insurance Company Won’t Pay

In the past, it was commonplace for life insurance companies to exclude just about anything that they found risky or even entire diseases. If you occasionally went sky diving or had the misfortune to die from AIDs, then you probably wouldn’t have been covered.  Today, a lot of things have changed in the life insurance world, including the list of exclusions.  Life insurers are much more likely to accept at-risk groups (though for sky-high premiums) and the list of exceptions is shorter.  However, there are still some reasons why your life insurance company may not pay out in the event of your death.

Incontestability

In every single life insurance policy, there will be a section for theincontestability clause.  This clause designates a duration of time (typically 2 years) in which the policy can be voided or premiums raised if the insurance company thinks that you lied or did not give out all information while applying.

Because of the incontestability clause, it is incredibly important that you do not lie or hide information on your application.  For example, let’s say that you are a smoker but stop smoking long enough before the medical exam so the insurance company doesn’t find out about your habit.  Then, a year later you get lung cancer and die.  When the medical examiner report shows years worth of smoke damage in your lungs, the insurance company will know that you lied and can void your policy.

Note that misstating something on your life insurance policy is not the same as outright lying.  Lying on your application can be considered insurance fraud and you can be held legally accountable for it.

Exclusions

Even though life insurance policies don’t have as many exclusions as before, there are still numerous reasons why they won’t pay out the policy of the insured person.  The #1 life insurance policy exclusion is suicide.  Some life insurance policies will still pay out in the event of suicide but only under certain circumstances, such as the suicide cannot take place within 2 years of the policy being taken out.

The next most common exclusion is “acts of war.”  An act of war doesn’t have to be as a combatant in a war or even as a casualty.  Acts of war can be part of undeclared wars as well.  Most people taking out life insurance policies before 2001 didn’t consider the chance of war, but the aftermath of September 11^th changed that, especially when people heard about how some insurance companies refused to pay many policies.

If you die while engaging in a hazardous activity, then the insurance company may also have the right not to pay out on your policy.  Insurance policies will each define “hazardous” differently but there are some basic activities while will be excluded by virtually all policies, like skydiving or mountain climbing.

Keep in mind that insurance policies do not have a standard form like property insurance or many other types of insurance.  You will really have to read into the fine print to make sure you know when you are covered and what events will exclude your coverage.  This can make a big difference when you are deciding whether or not to go on that skydiving trip or think about lying about your social smoking habit.