The more I scour the internet, the more misinformation I find about life insurance. Its everywhere. To make matters worse, much of this information is coming from supposedly reputable websites that search engines give prominent placement in their search results. There is a dearth of fact checkers out there when it comes to life insurance, so I decided to take up the challenge and become one of them. I’ve combated misinformation in the past, but I would use a single blog post to confront a single piece of misinformation. For this blog post I will do something different. For this post I will add content each time I find more misinformation. I imagine this post will become quite large. The best advice I have for people is to use an experienced agent for information. Don’t rely on the internet if you can help it. If you must use the internet, at least make sure the author is an experienced agent (like myself).
Children Owning Life Insurance On Their Parents
I read an article today that said it may not be preferable for adult children to own life insurance on their elderly parents. The article didn’t give any reasoning for this preference. I’ll give some good reasons for children owning life insurance on their parents. The first reason has to do with Medicaid spend-down. In order for Medicaid to pick up the tab, people must not have countable assets above $2,000. Most seniors, if they have life insurance, will have a permanent policy that has cash value, and cash value is considered a countable asset (the government makes an exception if the face amount is $1,500 or less). Just so I don’t scare a bunch of people, the cash value accumulation is very slow for policies with a low face amount. However, if you would like to remove all risk of being disqualified from Medicaid because of cash value, have your children own the life insurance policy. The government could care less how much cash value is in a policy if you don’t own the policy.
Another good reason for children owning the policy has to do with cognitive decline. Cognitive decline is a natural part of aging. Seniors may eventually lack the capacity to handle their own finances. If someone owns a policy, they automatically receive all financial notices related to the policy. If an adult child owns the policy, the child receives all notices. The person who receives policy notices should be the person best equipped to handle financial problems. Some policies may be structured in a way that someone other than the owner receives notices, but this is not the default option.
Perhaps the only deterrent for children owning a policy is the application process. Many insurers require both the owner and the proposed insured to sign the application. This may be impractical if the child lives far from the parent.
Permission To Insure
One article I read today said that someone wanting to buy life insurance on you must get your permission. First, minors are exempt from the permission rule. Second, the rule can be bypassed for adults if there is a power of attorney. I will say that very few insurance companies accept signatures from a power of attorney, so you will have to do your homework to find one. You’ll also want your agent to do his or her homework because there is extra paperwork involved. The insurance company may also want a compelling reason for using a power of attorney.
A recent article said that most term insurance policies require a blood and urine sample. Here is a more correct statement: there is an escalation of underwriting requirements depending on the rating class and the amount of coverage. Sometimes the coverage amount is low enough that no medical exam is required. Even when exams are required, it can be something as minimal as an agent taking a saliva sample. You won’t know what’s required until you speak to your agent. If you are going through a full paramedical exam for life insurance, the best thing is avoiding strenuous exercise before the exam. Strenuous exercise can throw off your vitals and make you appear very ill. People have been denied coverage over this mistake.
Buying Life Insurance Without An Agent
I’ve been seeing more and more advertisements lately that say you can sign up for coverage without talking to an agent. There is no harm in talking to an agent. In fact, many consumers make the mistake of not talking to an agent and simply going with the cheapest policy they can find. The cheapest policy is likely to be term insurance with no living benefits. Living benefits are important if you develop a terminal, chronic, or critical illness during your term policy. A cheap policy may also lack conversion privileges. However, if you are only looking for a death benefit (no living benefits) and you don’t care about conversion to a permanent policy, then you can safely buy term insurance without an agent. Be careful not to sign up for accidental death insurance. Consumers sometimes sign up for accidental death thinking that its term insurance.
When asked how to increase life insurance coverage, one article said, “simply increase the coverage limit on your existing policy.” First of all, in my 8 years as a life insurance agent, I’ve never seen a whole life policy that allows an increase in death benefit. Adding coverage usually means a separate policy and more underwriting.
The Price For Coverage
I read an article today that made the oversimplified statement that more coverage means higher premiums. Insurance premiums are based on units of coverage, and each unit of coverage equals $1000 in benefits. Insurance companies use something called banding to determine the price per unit. For example, one band might be 3 – 50 units ($3,000 – $50,000 in benefits). The lowest bands have the highest price per unit. The highest bands have the lowest price per unit. In other words, someone with a $250,000 policy will pay less per unit than someone with a $50,000 policy. Think of it as a volume discount.