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Return of Premium Life Insurance Tips
If you are in the market for a life insurance policy you should be aware that there are additional benefits you can add to your policy to enhance the benefit. Return of premium riders are one such option.
The Return of Premium rider is a particularly attractive option for consumers because it ensures that you will get all your premium dollars back if you do not die during the term of your life insurance.
Policy holders pay annual premiums throughout the policy term (usually between 15 -30 years). The sum total of all payments is returned to the policy holder at the end of the term unless a death benefit is paid out (ask your life insurance company what happens to the additional premium if death does occur)
Policy payments do not earn interest but, since they are paid with after tax dollars, their repayment is not a taxable event.
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LifeInsure.com Tip: Holding on to Your Life Insurance Policies
Ideally, life insurance policies are kept in a safe place and beneficiaries know how and where to find them if it becomes necessary to make a claim. When that isn’t the case there are ways to find a lost life insurance policy.
Tip 1. Review Financial Records
• Financial records can give beneficiaries a clue about who might have issued the policy holders insurance. • If such records are not immediately available talk with people who may be familiar with the deceased’s financial history.
Tip 2. Contact the Medical Information Bureau (MIB)
• This agency has a database of requests from insurance carriers for medical information from potential applicants.
Tip 3. Check with the Insured’s State
• If no beneficiary steps forward to claim the benefit the insurer may turn the funds over to the state as unclaimed property. If the death occurred at least 3-5 years ago it might be worth checking your state’s searchable database for unclaimed insurance benefits.
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Adverse Selection (also called Anti-Selection)
Adverse selection occurs when a proposed insured who is already critically ill applies for life insurance. This is considered adverse selection because it increases the risk to the insurer. It can also create an inadequacy in the rate structure because the insurance company is charging a rate for a healthy person with lower risk.
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LifeInsure.com Tip: Tips for Evaluating Financial Strength of Life Insurance Companies
Who provides life insurance company ratings and why do they matter to consumers? The following tips offer useful information on choosing a life insurance company you can depend on to be there when you need them.
Some of the leading services offering life insurance ratings include A.M. Best and Company, Moody’s Investor Service and Standard & Poor’s. Ratings are expressed slightly differently among life insurance rating services. If you aren’t sure how to interpret a rating there are two things you can do.
• Look for a legend that provides a definition for the rating – for example, with Moody’s, Ba1, Ba2 and Ba3 mean the company has been assigned a “questionable” rating.
• Talk with your agent to help you interpret life insurance ratings.
Policy holders pay premiums based on the promise that the life insurance company will pay the benefit in the event of a claim. If the promise is broken and the benefit is not paid the consequences could be devastating. When you are shopping for life insurance be sure that the life insurance company rating figures prominently in your decision making.
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Personal History Interview (PHI)
A personal history interview is the set of questions a proposed insured is asked by their agent or underwriter to determine their risk to the insurance company. The PHI contains questions about the proposed insured's health, medications, hobbies and occupation.
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LifeInsure.com Tip: Buying Term Life Insurance
Use the following tips and strategies to save on life insurance.
Tip 1. Consider Low Cost Term Life Insurance
• Low cost term life insurance is available for as little as one year or for as long as 30 years. Longer policies carry lower term life insurance rates. • Insurance shoppers should be aware that this most basic coverage does not include an investment component, but it is still a good choice. Term life insurance offers the convenience of set payments, which means no surprises. • Policy holders can expect that beneficiaries will receive the face value of the policy. The good news is that there are many affordable life insurance policies available with values in excess of $1 million.
Tip 2. Get Several Term Life Insurance Quotes
• Believe it or not, the rates for similar (and sometimes even the same) coverage between insurers can span several hundred dollars. Shop around for the most affordable term life insurance quotes before you sign on the dotted line.
Tip 3. Use an Insurance Calculator for Accurate Term Life Comparison
• An insurance calculator can help you determine how much value you will get from your policy based on the price you expect to pay. • When comparing policies be sure to make all things equal to get the most accurate picture (in other words compare apples to apples).
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Affordable Life Insurance Option: Group Life Insurance
Employer-provided life insurance coverage is often the most affordable form of life insurance available. This is because the insurance is underwritten based on the group's risk, rather than yours as an individual. Your individual health will not be considered, since the underwriters use other criteria to determine risk when underwriting group life insurance. If your employer doesn't provide a life insurance benefit, find out if any of the organizations or unions you are a member of offer group life insurance to their members. Organizations like AARP, AAA, trade and talent unions often offer group life insurance to their members at a fraction of the cost of individual insurance.
*It is important to remember that your benefits may be contingent upon your membership or employment.
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LifeInsure.com Tip: Tips on Classification of Smokers
Life insurance for cigar smokers may cost less than life insurance for heavy smokers. Use the following tips to understand how smokers are classified.
Tip 1. Insurers Assign Classes Based on Individual Standards
• There is no one rule book that every insurer plays by. Each has their own policies for review and evaluation of life insurance applications. That’s good news for smokers. • A significant portion of the population engages in some form of tobacco use (including snuff, cigarettes, gum, patches, etc.). Increasingly, insurance carriers are evaluating applications involving life insurance for smokers on an individualized basis.
Tip 2. Individual Standards and Individualized Evaluations Mean Better Rates
• Some companies do not classify applicants with only trace amounts of nicotine in their systems as smokers. Non-smokers receive better rates. • Some companies make classifications based on amount and type of usage. For example, snuff users may be classified differently than cigarette smokers and occasional cigar smokers may be classified differently than cigarette smokers. • It is important to share as much information as you can with your agent so that your situation can be clearly understood and the best rate assigned.
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Variable Life Insurance
The performance of the cash value in a variable life insurance policy is tied to the stock market. When you choose a variable life insurance policy, you’ll be able to choose certain ‘sub-accounts’ that act almost as mutual funds. The performance of the investments that make up these sub accounts will drive the performance of your cash value. Since the stock market can move up or down, so can your cash value.
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Risk Criteria- Vocation and Avocation
When underwriting your life insurance application and determining if you are an acceptable risk for the company, an underwriter will take both your vocation and avocations into consideration.
Your vocation is your job, and if you are in a dangerous vocation like construction or police work, you may be declined or charged an additional premium.
Your avocations are your hobbies. Scrapbooking and golf will not be considered dangerous by the underwriter, but scuba diving and hang gliding may and could also result in higher premiums or a declined policy.
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