If you are shopping for a life insurance policy, you probably have lots of questions. And you're not alone. Life insurance can be a complicated and intimidating topic, but by asking a few simple questions, you can better understand what you are getting, how you may benefit from the protection, and what you can expect from your life insurance policy.
So, with apologies to David Letterman, here's our Top 10 List of Questions You Should Ask Your Life Insurance Agent before buying a life insurance policy.
Your life insurance need is determined by two primary factors: How much money your surviving loved ones will need to live after you are gone and how much money will be needed to pay off your current debts, such as a mortgage, car loans, and student loans. However, the amount of life insurance you need is a very individualized number that can only be determined by carefully examining your current and future financial situation.
Not all insurance companies are created equal, so it's important to know not only which company your policy is with, but also the financial strength, size, and ratings of that carrier. Only go with established, reputable carriers who have the financial stability to be there when you and your family need them.
Term life insurance policies provide coverage for specified periods of time, usually 10 to 30 years. Term life is cheaper than permanent or whole life policies, which last for as long as you live. Be sure to ask your agent how long your life insurance policy will last.
Permanent life insurance policies generally provide some cash-value benefits, but that's not the case with term life. If your whole or universal life insurance policy provides living benefits, be sure you understand the rules for borrowing money against your policy.
Many life insurance policies provide some benefits for policyholders who become disabled. Even if your life insurance policy provides some disability benefits, you may also want to ask your agent about Accidental Death & Dismemberment coverage, which provides lump sum benefits for loss of a limb, sight, hearing, and other disabling injuries.
Every life insurance policy includes exclusions, which are instances in which the insurance company would not have to pay death benefits. The reason why is pretty simple: If the policy had to guard against every single possible risk of death, the price for the policy would be sky high. Be sure you understand the exclusions before you sign on the dotted line.
In most cases, the lowest life insurance rates require the policyholder to undergo a simple medical exam. There are policies that do not require a medical exam, but those policies generally are more expensive. If you are in reasonably good health, it makes sense to take a brief medical exam and save money on your monthly premiums.
Many life insurance policies allow you to renew at the end of the term without having to re-qualify or submit to a new medical exam. Some renewable policies set a deadline for when you can decide to renew, so be sure to ask at what age you have to re-qualify to avoid missing out on the opportunity.
For term and whole life policies, the amount of monthly premiums you pay each month are fixed and will not change for the duration of the policy. However, if your policy expires and you choose to either renew the policy or buy a new life insurance policy, your premiums on the new policy will likely be higher than what you have been paying, since you are older than when you bought the first policy.
A $500,000 policy may sound like a lot today, but that amount will only be worth about $200,500 in 30 years due to inflation. Some policies automatically adjust for inflation, but for some carriers, there is an extra charge for inflation adjustments. Be sure to ask about inflation adjustment.