What To Expect From Life Insurance Companies If You Have COPD Or Other Lung Disease

If you have COPD or any other lung disease, insurance companies will put you in one of three categories: graded (also called modified), standard, or preferred. Graded plans have a two year waiting period for full coverage, and they are usually the most expensive. Unlike graded plans, standard and preferred offer immediate full coverage (no waiting period). The only difference between standard and preferred is the rate you pay, with standard being more expensive.

The category you fall under depends on three criteria: the insurance company, the type of lung disease, and the frequency of symptoms. As you probably know, different insurance companies have different appetites for risk. Some insurance companies try to put everyone with more than seasonal symptoms into a graded/modified plan. Conversely, some companies are fine giving preferred rates for chronic asthma. The type of lung disease matters to insurance companies because some types pose a greater risk to life. No company will give a preferred rate for COPD. A standard rate is the best you can hope for with that disease. As a general rule, you should expect a graded/modified plan whenever supplemental oxygen is used (some companies make an exception when oxygen is used for sleep apnea). The last criteria is frequency of symptoms. Inhalers are a good example. Inhalers used for yearlong symptoms will sometimes give you a less favorable underwriting decision than inhalers used for seasonal allergies. If you live in Houston or surrounding cities, you can get one of the Houston life insurance plans that cover COPD and other lung diseases.

How Much Life Insurance Coverage Is Necessary For Income Replacement?

Income replacement is one of the biggest things to consider when determining the amount of coverage needed in a life insurance policy. Financial professionals offer several different formulas to calculate income replacement. One of the simplest formulas takes your annual income and subtracts your personal expenses. For example, let’s say you bring home $50,000 per year. Some of that money will be spent on your personal needs (not family needs). If you are no longer alive, then you are no longer spending money on personal needs. That’s why personal expenses are subtracted from annual income. A common assumption is that 25% of your annual income is devoted to personal expenses. Financial professionals recommend a minimum of 5 years income replacement.

There are some decent life insurance calculators available, but one assumption they all make is that your income is the only income that needs replacement. Grieving affects many things, including job performance. Some surviving spouses may require a long time to grieve, so their job performance may be affected long term. Grief may even cause someone to lose a job. I don’t claim to know the statistics on grieving and job performance, but one thing makes intuitive sense: jobs that require a great deal of creativity are most affected by grieving. On the other hand, jobs that require repetitive manual labor are probably the least affected.

Job performance may also be affected if the surviving spouse has young children. Time may be needed away from work in order for a parent to provide emotional support for grieving children. In conclusion, it’s good to consider the income of both spouses for life insurance coverage even though only one spouse is being insured with the policy. If you have any questions, don’t hesitate to send me a message.

Will I Save Money If I Backdate My Life Insurance Policy

One of the biggest rating factors for life insurance is your age. Most people probably don’t realize they can turn back time and be rated a year younger. Before people get too excited, I want to caution there are some restrictions and reasons for not doing this.

  • Every insurance company has its own rules for backdating. Some allow a full 6 months, others allow a much shorter time, and some don’t allow any backdating. Backdating a policy several months might not be ideal for many clients because an agent has to collect all backdated premiums up front.
  • Backdating might not be advantageous for young people. The difference in premium between someone who is 20 years old and someone who is 21 years old is negligible. On the other hand, the difference in premium between someone who is 79 and someone who is 80 is substantial.
  • Backdating is only for people who are fairly certain they will keep a policy for life. I would not recommend it for someone with a history of life insurance cancelling because of nonpayment. If you end up keeping a policy for only a few months, then backdating is a waste of money.
  • You must deal with an agent’s willingness to backdate. The issue of backdating rarely comes up for agents, so they might be out of practice and uncomfortable with the idea. Agents are a little paranoid about making mistakes, and agents know they are more likely to make mistakes with uncommon issues.

Life Insurance Misconceptions

A licensed insurance agent corrects misinformation about life insurance.

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.

Exam Requirements

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.

Increasing Coverage

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.

Should I Replace My Life Insurance Policy If I Find A Better One?

This post discusses the good and bad reasons for replacing a life insurance policy.

I read life insurance articles all the time. One article that I read said replacements are typically a bad idea. As an agent, I know there are legitimate and illegitimate reasons for replacing a life insurance policy, but I would never make a blanket statement that replacements are generally good or bad. That would be irresponsible. Let’s start off discussing legitimate reasons for replacing a policy.

When it comes to simplified issue whole life, underwriters don’t care about certain medical events such as heart attacks if the event occurred long enough in the past. In fact, someone can have a dozen heart attacks and it wouldn’t matter as long as he or she passes the time threshold (agents call this the lookback period). I’ll explain why the lookback period matters when considering a replacement. Let’s assume someone was scared into buying a life insurance policy because he or she had a heart attack less than a year ago. That person would be limited to modified whole life. Modified whole life (sometimes referred to as graded whole life) has a two or three year waiting period for full coverage. During this waiting period, the full death benefit is only paid out for an accidental death. Let’s assume a year passes and the same person can now qualify for ordinary whole life (no waiting period). Replacing a modified whole life policy with ordinary whole life is appropriate in this situation.

That last example was an obvious one. A less obvious choice occurs when the same type of policy with the same amount of coverage is considered for replacement because of price. Many agents will point out that a replacement starts a new contestability period. A contestability period is a two year period from the start of a policy in which the insurance company can investigate a death claim. The consumer risk associated with a contestability period is sometimes overstated. As long as the insured was honest on the application, there is nothing to worry about except for a slight delay in benefit payments as the insurance company investigates the claim.

If there is only a slight price difference between the old policy and new policy, a replacement might not be worth it. The small price difference won’t justify losing the time spent satisfying the contestability period. Also, a replacement means you’ll be cancelling the old policy, and there is a time investment with that process (granted its not a huge investment of time). Be wary of agents pushing for a replacement when both policies are of the same type and similar price. Agents typically receive more commission by doing replacements instead of extra policies.

Are you protected from bad replacements? Yes, the insurance industry has put some safeguards in place. One safeguard is a free-look period in which a replacement can be rescinded and a full refund issued on the new policy that was purchased. The agent is also required to give you literature that helps you be more informed about replacements. Below is a sample replacement form that is used for all replacements in the state of Texas.

First page of standardized replacement form used in Texas
standardized replacement form used in Texas – page 1
Second page of standardized replacement form used in Texas
standardized replacement form used in Texas – page 2