Life Insurance: Coverage for you and your family

by zhl203 » Tue Dec 08, 2009 04:26 am
Posts: 10
Joined: 08 Dec 2009

When you have family members depending on your income, saving for the future of your loved ones is a good idea. Investing in life insurance will give you enough financial support to take care of the future of your loved ones when you are no longer around. A life insurance plan also makes provision for a cash value where a part of your premium is put into a savings account. Hence, while you invest for a secured future, you can make savings too.

What is life insurance?

Life Insurance means insuring your life to save for the future of your family. If you have family members depending on your income you may invest in life insurance. This is a contract between you and your insurance company where your insurer agrees to pay a certain amount of money to your beneficiary in the event of your death.

What are the types of life insurance?

  • Term Life Insurance:

    For those who are running on a budget, you can opt for a simple life insurance. Term life insurance allows the beneficiary death benefits for a specific period or 'term'. This term may be 1 or more years and the benefits are paid only in the event of death of the policy holder within the term of the policy.

    There are certain term life insurance that can be renewed for more than one additional term. However, if you do so, your premiums may go higher. You may even sometimes be allowed to trade your term life insurance for a whole life insurance policy.

    Term Insurances are of 5 types:

    1. Annual renewal term insurance: Allows you to renew your term insurance every year till you reach a specific age which often freezes at 65.
    2. Renewable term insurance: With expiry of the term of the policy (generally 5-20 years), you can automatically renew the policy even if your health condition has worsened. It is similar to the annual renewable policy but this one is for a longer period of time.
    3. Level premium term insurance: Ensures that your premiums will not go higher for the term (between 5 and 20 years) of your policy.
    4. Decreasing term insurance: Allows your premiums to stay level throughout while decreasing your cash benefits each year. Such policies are usually used to cover items whose costs decrease with time.
    5. Convertible term insurance: With this policy you may convert your term insurance into any other type of life insurance policy that the company offers.

  • Whole Life Insurance:

    A whole life insurance covers a policy holder for his entire life. There is no date of expiry like in a term life insurance and the death benefits will be received by the beneficiary mentioned in the policy only in the event of the death of the policy holder. If you buy a whole life insurance you will have to pay a higher premium as compared to a term life insurance. The reason for this is that a certain portion of the premium paid for whole life insurance is put away into a savings program.

    When you compare the total premiums paid for whole life insurance and the total premiums paid for term life insurance it is seen that whole life insurance is less expensive. Even if you pay higher premiums for whole life insurance, the fact is that the premiums remain the same throughout the tenure of the insurance. But in the case of term life insurance, you may be paying lesser premiums in the beginning, but as you renew your term policy, premiums will increase. Hence, the total value accrued in term policy is bigger than a whole life insurance.

    Certain clauses in a whole life insurance allow you to pay premiums for a lesser period of time. The greatest advantage in this policy is that the premiums develop cash values that may be claimed or used for purchasing rider policies for more protection. Few of the whole life insurance benefits are:

    • Guaranteed death benefits
    • Guaranteed cash values
    • Fixed annual premiums

    A whole life insurance also known as "straight life" or "ordinary life" insurance, is not just an investment for your future alone, but also for the future of your family.

    To understand the basic difference between term life insurance and whole life insurance click here.

  • Universal Life Insurance:

    Universal life insurance is a flexible policy that provides security for you and your family. To know more please click here.


How to save money on life insurance policy?

When you shop for life insurance coverage, there are certain ways by which you can save money on your policy. You must look for a policy that meets your needs and the right kind of benefits received. If you think that buying a policy with a low premium will save your money think again. If you buy inadequate insurance, it will be a sheer waste of money. However, you can maximize your life insurance dollars using some of the tips provided here.
  1. Seek financially sound companies: Look for companies that are financially strong so that when your beneficiary(s) make a claim, he may receive the benefits of life insurance without hassle.

  2. Shop around: Get life insurance quotes from more than one insurance provider. You may even ask an insurance agent or an insurance broker to get you few insurance quotes from different carriers. You may then compare the quotations and find a policy that suits your needs as well as pocket.

  3. Seek group insurance: Employer provided group life insurance is often given at subsidized rates so you may find a less expensive policy here. Even if you have to pay premiums out of your own pocket this might be a good idea for the subsidized rate they provide. However, premiums paid by you will probably be through payroll deduction which is convenient. But a comparison of group and individual rates depending on your age, health must be done to assess which is the best policy for you.

  4. Change in lifestyle: Maintain a healthy lifestyle. Smoking may rate you as a risk option and you may have to pay higher premiums. Exercise regularly and consider making more lifestyle changes if necessary.

How to decide on the type of life insurance to choose from?

You may go for term life insurance if:
  • You need to make a short term investment and not a permanent one. With term life insurance benefits you can ensure the education of your children if you can invest in time. If there is a debt that you have to pay off, you may invest in term life insurance. Term life insurance covers you for a term of 5 to 20 years.

  • You need a big amount of life insurance with a premium that suits your pocket. A term insurance usually pays only in the event of death of the policyholder. However, if you are alive at the time the policy ends, term life insurance coverage will stop until you renew it. But here, you will not build a savings like in a whole life insurance.
You may opt for whole life insurance if:
  • You need life insurance stretching for the tenure of your life. A whole life insurance would pay the beneficiary the death benefit no matter when the policyholder dies.

  • You feel the need to accumulate a savings on a tax-deferred basis. A whole life insurance has its own savings program that puts aside a certain portion of the amount you pay as premiums into the savings program.
Click here to know more.

Can you pay your mortgage with life insurance?

Yes. With mortgage life insurance your mortgage loan can be paid for in the event of your death in a time when the loan is not paid off fully. This insurance is available for 15 and 30 years where for the first 5 years, the amount of insurance is level and then decreases on an annual basis. The premiums for mortgage life insurance can be paid annually, semi-annually, quarterly or monthly.

How should you choose a life insurance company?

When choosing a life insurance company, take the following into consideration:
  • Identity of companies - Make sure to know the full name, office location and affiliation of the insurance company that you plan to buy from.

  • Product sold - Check out what products the company is selling. Most often the companies provide a wide range of policies. Check for what you need and if they have it you may consider buying from them.

  • Financial Security - Select a company that is strong financially and has been in business for long. Your life insurance is an investment to secure your lifetime. Be sure that your insurance company will make life easy for you and not otherwise.

  • Ethics - Check if your company abides by the codes of conducts and principles of the Insurance Marketplace Standards Association. This non-profit organization promotes ethical conduct in life insurance marketing.

  • Agent - An agent is supposed to help you out with your insurance needs on behalf of the company. You must consider taking help from a reliable person only. If there is any discomfort in dealing with the agent, move to another one.

  • Cost of insurance - Based on your age, type of policy and features, and the amount of insurance to be purchased, compare one insurance company with the others. Find out one which offers a better coverage.

  • Claims - A national claims database will give you the complaints (if any) against an insurance company. You may want to check to find if the company you are considering buying from is listed for consumer complaint.

How does a life insurance company choose you?

Your application for a life insurance policy has to go through the insurance underwriting process before it's approved. The underwriters evaluate the risks associated with your application and forward it to the insurance processing department of the company.

Factors that influence underwriting procedure for Life Insurance
  1. Age of the individual to be insured.
  2. Gender of the person
  3. Pre-existing medical conditions
  4. Medical records of the family
  5. Smoker or non-smoker
  6. Mental health of the person
  7. Occupation
  8. Hobbies or lifestyle habits (activities like race car driving, mountain climbing or bungee jumping might be marked as risky)
  9. Driving records
  10. Credit history
  11. Selection of coverage limits, benefits etc.
  12. Medical reports after thorough health check-up including tests like :
    • > Blood pressure level
      > Blood sugar level
      > Cholesterol level
      > Weight of the individual
      > Urine tests
      > Blood tests
      > EKG/ECG
      > X-Rays
      > Stress tests etc.

Click here to know how the above mentioned factors affect the rates of a life insurance policy.

Your life insurance policy might not come to your assistance in your lifetime. However it'll help securing the future of your loved ones when you won't be there to take care of them. A small amount spent at regular intervals will thus be able to give you the sense of security, as you hand over the risks to your insurer. Top

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My parent bought whole life insurance that pays dividends many years ago. The sales representative told my parent that she can stop paying premium in approximately 12 years because the it policy would be able to pay for itself at that time. And at the same time the policy will make annual distributions to my parent. What does that mean? Is there such thing?

The reason why I'm asking is because they're into the 13th year now and they are still paying the expensive premium. When I called the representative, they told me that the account has accumulated certain cash value and dividend, but the accumulated dividend can only cover approximately 3 years of premium.

I did some research, I understand that the cash value is like equity, but is it truly equity like we really own the money? if yes, when can we cash out the equity? if we cash out, the policy terminates? I understand that when the insured dies, the beneficiary would get paid the face amount, but what happen to the cash value? who gets it? Also, what happen if the insured dies of old age (not due to accident), is it still covered by the policy? what happen to the cash value?

Thanks in advance for your help.

Total Comments: 282

Posted: Thu Feb 18, 2010 01:08 am Post Subject:

Max and BNTRS: Let me commend you both for doing a great job for this person.

I honestly was getting "really" interested in this case until the name, MetLife, popped up. My lawsuits have cost mother Met around $750M and, as you might imagine, they don't like me very much.

I'm almost positive that a policy purchased in 1997, was included in at least one of the big class suits and, therefore, the policy owner has no legal recourse.

At first glance, this appears to be a case of Vanishing Premium Fraud but, I seriously doubt the old agent acted maliciously in the sale of this policy. The policy was merely a victim of drastic changes in both the company and the economy. With that in mind, I doubt I would ever take on a case like this.

I would only make one small alteration in the information given to this person. Actually, you may have previously clarified that dividends and cash value are two completely separate entities and that dividends are not generated by an overpayment of premiums - that's where cash value comes from.

Other than that, you both have done a great job!
I'm proud to have you both on my team.


Posted: Thu Feb 18, 2010 02:02 am Post Subject:

Life Insurance Dividends

Life Insurance dividends are generated by permanent participating life insurance policies. The term Participating means the policy owner receives a benefit if the company’s performance is better than anticipated (there really is an actuarial formula for this).

On the other hand, some whole life policies are non participating which means they do not participate if the company’s performance is better than anticipated. In some cases, the premiums for non participating policies are lower than those of participating policies.

Dividends are based on a mutually owned company’s [investment vs. mortality] experience and are not guaranteed

Because so many companies have demutualized in the last few years, dividends on new policies are few and far between.

When Are Dividends Paid?

Payment of a life insurance dividend indicates that the life insurance company's operating expenses, risk selection, and management experience has exceeded expectations and, therefore, the policy owner participates in this good performance.
• Dividends are almost always paid on a policy’s anniversary date, the year after which it is earned. It is equal to the difference between the policy value and the cash value in that year. The value of paid up additions, the size and age of the policy, and the amount of premiums are things considered when calculating dividends.
• The policy value is equal to the guaranteed cash value, plus the gross annual premium, less mortality and expense charges, plus any interest (typically between 2 and 4%) which may have been credited to the policy, minus the guaranteed cash value.

How Can You Use Dividends?
• Unless another option is selected prior to issue, life insurance companies typically use dividends to purchase paid up additions. Paid up additions are like little fully paid up single premium policies that never require a premium. Each of these little paid up policies have cash values and also earn additional dividends if the company does well.
• You can use your dividends to reduce the premiums of your participating whole life policy. Over a period of years, the reduction can be considerable, thereby making the premium payments on an older policy a little easier to budget.
• You can have your dividends paid in cash. If you should choose this option, the life insurance company will send you a check each year.
• Dividends can also be left to accumulate interest. Many people like this dividend option as the amount you receive over 10, 15, or 20 years can be considerable.
• When added to the policy’s cash value, life insurance dividends, if left to accumulate, could grow fairly large. This amount, of course, depends on the size of the policy and other factors.

Posted: Mon Feb 22, 2010 07:39 pm Post Subject: mother dying, can the health center take money out of life i

My mother is leaving a will. My sister is power of attorney. she said the life insurance will be taken by them for any bills that blue cross and medicaid did not pay. How does this work.

Posted: Tue Feb 23, 2010 01:55 am Post Subject:

Who is "them?" The Will will have no legal authority over the life insurance proceeds. The life insurance proceeds aren't necessarily needed to pay bills (I'm guessing medical) not covered by the insurance company and medicaid. That's something the hospital or long term care facility can go after her estate for. If there's no estate, or a small one that no one really cares about, or is very liquid, the claimant/creditor will take a bath on the charges or will take them from the estate respectively. The life insurance proceeds can bypass the estate with respect to creditor claims.

Posted: Wed Mar 17, 2010 06:35 am Post Subject: Life Insurance Twists

My sister-in-law took out life insurance on my mother-in-law about 3 years ago and changed it so that she is a lein holder on the policy along with her. If my mother-in-law no longer wants this policy out on her, can she cancel it without my sister-in-law or do they both have to agree to it. Can you have more than one life insurance policy out on a person because the other siblings want to take out a policy where all the siblings are included as beneficiaries on the life insurance? My mother-in-law has no clue what kind of insurance coverage was taken out because my sister-in-law says she can't do anything since she's now also a lein holder for the policy. Did I mention that my sister-in-law sells insurance? Something seems fishy.

Posted: Wed Mar 17, 2010 06:40 am Post Subject: Last Will and Life Insurance

If I set up an estate or Last will that indicates where I want things to go or who I want to inherit specific benefits, can that be done for my life insurance policy even if someone else is a lein holder on my policy and I don't want them to control it? Can I remove someone as a lein holder on my life insurance policy or do they need to agree to be removed?

Posted: Wed Mar 24, 2010 02:21 pm Post Subject: Cash Value usage

Can an insurance company use the accumulated cash value of a policy if the policyholder is no longer able to pay the premium--without the policyholder's permission?

Posted: Wed Mar 24, 2010 08:29 pm Post Subject: Purchase of 10,000 Whole life insurance

Mr.David P. Hut.
I received my supplement policy for medicare today and thought I would ask you about getting me a whole life insurance policy from Mutual Of Omaha. I had one UR19304886.
but Mutual had me confused about the payment. I was paying 55.00 a month thru my bank bill payment and they were trying to collect 55.00 through EFT. I believed my payments were already made however after having gone over my bank records the payments were offered but never accepted by Mutual of Omaha. I would like reinstatement of my current policy and if they will reinstate it I will pay I Feb, Mar, and Apr premeiums. Can you help me with this mess. I have tried to contact Mutual but can never get an answer and besides if you were to sell me this policy perhaps therewould be a commission in it for your agency? Any help getting this policy reinstated would be greatly appreciated by me.
Thank you
Jesse W. Mitchell
556 Caseyville Road
Collinsville, IL 62234

Posted: Thu Mar 25, 2010 10:18 am Post Subject:

Can an insurance company use the accumulated cash value of a policy if the policyholder is no longer able to pay the premium--without the policyholder's permission?

No. However, there may be contractual language and/or something in the application that has given them this permission.

For instance, if it is a whole life policy, take a look at the application. Something called an "automatic premium loan" is probably checked. This is permission for the insurance company to take a loan from the cash to pay the premium.

Posted: Thu Mar 25, 2010 03:40 pm Post Subject:

Wow! A lot of different questions here all at once. I'll start with "Life Insurance Woes"

If I set up an estate or Last will that indicates where I want things to go or who I want to inherit specific benefits, can that be done for my life insurance policy even if someone else is a lein holder on my policy and I don't want them to control it? Can I remove someone as a lein holder on my life insurance policy or do they need to agree to be removed?

Need to clear some confusion here. Wills and life insurance do not have much association with one another unless the life insurance money is being directed into the decedent's estate, where it is simply added to all other assets of the estate and becomes subject to claims against the estate by "creditors" of the decedent first.

In order of preference, those "creditors" fall into a few distinct categories: (1) employees of the decedent (if an unincorporated sole proprietor), (2) "Uncle Sam" (federal govt), (3) (a) state, (b) county, (c) local govt, (4) unsecured creditors (credit cards, personal loans, civil judgments), (5) anyone else with a valid monetary claim against the decedent.

[[ Secured creditors have their claims satisfied by receiving title to the security interest -- mortgages/homes, cars, boats, etc -- regardless of the value. If the property is worth less than the secured interest, the creditor generally has no additional claim unless the decedent did something intentionally to reduce the item's value or "hypothecated" the security without the creditor's consent (sold/exchanged to a third party). However, if the property value exceeds the creditor's actual security interest, the creditor owes the difference to the decendent's estate, where it will be available to satisfy the claims of the unsecured creditors. (Example: Creditor holds a mortgage with a remaining balance of $100,000. The home is worth $300,000. The creditor owes $200,000 to the estate -- or it allows the probate court to dispose of the property and receives its $100,000 (the usual course of events) and the balance goes to the estate.]]

Creditors 1-2-3, in order, are entitled to 100% of their claims until the money runs out. Creditors 4-5, if any money remains, are subject to the probate court's discretion, meaning if there is not enough money to pay all in full, the probate judge has the discretion to parcel the money in any manner he/she sees fit (within the confines of probate law) so that all receive something as their "liquidated damages" and the unpaid portion of their claims are dismissed (similar to the action of a bankruptcy court).

What this really means is that anyone the insured probably wanted the money to go to might never see a penny of the money. This is the primary reason to NEVER name the estate as the beneficiary or leave the beneficiary designation blank on the application.

A will is not a substitute for a beneficiary designation.

Having said this, let me address the second part of your question, specifically.

if someone else is a lein holder on my policy and I don't want them to control it? Can I remove someone as a lein holder on my life insurance policy or do they need to agree to be removed?

Any changes that can be made may only be made by the policyowner. I will assume that you are the policyowner.

As the policyowner, you have the right to name and change beneficiaries, unless they are designated as irrevocable. A "lienholder" is not a beneficiary, but they have a financial interest in the death benefit. In other words, they are a "creditor" of the death benefit (not necessarily of the insured). This is entirely outside the realm of the will.

A "lienholder" will have their claim paid from the death benefit proceeds before any other beneficiary, or the estate, receives the balance of proceeds, if any. So in that sense, it looks very similar to my previous explanation of what happens to money in an estate. Other creditors of the decedent still have no claim against the money until and unless it reaches the decendent's estate. This is an absolute protection afforded both life insurance, structured settlement, and retirement plan assets (all of which are intended to have a beneficiary other than the estate).

As a creditor, a policy "lienholder" has a secured interest in the policy proceeds to the full extent of their claim. This is known as a "collateral assignment". The policy proceeds are the creditors collateral/security for some obligation that exists between the insured and the lienholder.

A lienholder is unlikely to release their collateral assignment without some exchange of value. Could be money, property, or anything else the lienholder accepts as payment in full and then signs a "Release of Collateral Assignment."

Often, a collateral assignment is given in exchange for permission to repay a debt periodically. It could be a hospital that is receiving monthly payments following surgery or treatment not covered by medical insurance. When this is true, the lienholder's claim must be supported by documentation of its "interest as it may appear." Meaning: the lienholder must present a record of payments and outstanding balance to support its claim. The other policy beneficiaries have the right to contest the lienholder's "interest" if they can provide a record of payments that differs from the one being presented by the lienholder. Obviously, this can become a very contentious situation, and could become very time-consuming, even expensive.

But, no, there is nothing anyone can do to cause the lienholder to be removed without that person's written consent. If the person is a "natural person", their claim endures to their estate if they predecease the insured.

On the other hand, a person with a collateral assignment is not the owner, and may not be able to prevent the owner from lapsing/terminating the policy. Their "interest" may otherwise be enforceable, and terminating the policy could be a "cause of action" in civil court. If the owner lapses/terminates the policy, he could still be sued for the money he/she was obligated to under the collateral assignment. And the judgment that results could become a liability of the estate -- one of the #4 unsecured creditors.

Now on to "Localmaiden" and her questions.


My sister-in-law took out life insurance on my mother-in-law about 3 years ago and changed it so that she is a lein holder on the policy along with her. If my mother-in-law no longer wants this policy out on her, can she cancel it without my sister-in-law or do they both have to agree to it.

This, too, is one of policyownership first. If "sister-in-law" is the owner, "mother-in-law" is powerless to terminate the policy. It is unlikely that the policy is under "joint" ownership, which would require the consent of both owners. If "mother-in-law" is the owner, she has the right to terminate the policy.

But the matter of "lienholder" is confusing. Your statement that "[she] changed it so that she is a lienholder on the policy along with her" makes no sense.

I assume your statement refers to "sister-in-law" naming herself as a "lienholder" in addition to "mother-in-law" as a lienholder. But if "mother-in-law" is the insured, she cannot have a collateral interest in the policy. One cannot live and die and collect.

If "mother-in-law" is the owner, she has the right to create a collateral assignment between herself and any other person. But it must be done in writing and accepted by the insurer. It cannot be a private agreement, and the insurer cannot lawfully act based upon a private agreement to which it has not consented.

So there is something missing or unsaid (or incorrectly stated) in your question and information.

As to the other part of your question,

Can you have more than one life insurance policy out on a person because the other siblings want to take out a policy where all the siblings are included as beneficiaries on the life insurance?

Short answer: YES. A person can be the insured on as many policies as insurers are willing to offer.

Long answer: A person, however, is not entitled to an unlimited amount of life insurance. It must be demonstrated to an insurer that there is a valid legal purpose for the amount of insurance being applied for (one of the three necessary components of insurable interest).

It is a requirement in an application for insurance to inform each insurer of any other existing insurance (or insurance that has been applied for but not yet issued) on the insured. This allows the insurer to evaluate whether or not there is already sufficient life insurance on a person's life, before it offers additional coverage.

A person whose material net worth is $100,000, for example, will not be issued three or four or five (or more) $1,000,000 policies just because someone is willing to pay for them. It would appear that those persons are expecting to profit on the death of the insured, which violates the fundamental premise of insurable interest that a profit is not created by the insurance itself.

Failure to inform the insurer of existing insurance ("concealment"), is a material misrepresentation, possibly even fraud if done with intent to conceal. It would allow the subsequent insurers to rescind their policies if they have not passed into incontestability. If based on fraud, some states' insurance codes allow fraudulent applications to escape the incontestability period, and the insurers would be entitled to rescind even 20 years later (or more).

Now to your final statement,

My mother-in-law has no clue what kind of insurance coverage was taken out because my sister-in-law says she can't do anything since she's now also a lein holder for the policy. Did I mention that my sister-in-law sells insurance? Something seems fishy.

There are a couple of problems with this. First, a lienholder does not exercise any outright control over the ownership or rights of ownership in a life insurance policy. They cannot, in most cases, prevent an owner from terminating a policy.

Their collateral interest may, however, be enforceable in civil court. If the policy is subject to a prior court order, then the lienholder may have the right to prevent a policy lapse/termination. But this is highly unusual. The lienholder might have a different "cause of action" against the insured for its claim that could be taken to civil court if the policy lapses/terminates.

If you suspect that "sister-in-law" is violating her duties as a licensed agent, this is a matter for the insurance regulator in the state her license was issued (usually the Commissioner or Superintendent of Insurance). In most states the agency is the Department of Insurance, and they will have a complaint mechanism that is fairly easy to navigate. Many states have online complaint forms that you can fill out and file in a matter of minutes. They all have toll-free complaint lines to receive initial complaints by phone or to provide information on how to file a complaint or report an agent or insurer.

Misdeeds by agents are a VERY SERIOUS MATTER, and are immediately investigated, and vigorously so in most states. Understand that it can take a year or two to complete such an investigation, if it becomes a complex matter. But if there is the least bit of wrongdoing involved, it will be discovered and prosecuted -- administratively and/or criminally. If there is no wrongdoing, you will receive an explanation of the Department's investigation and outcome.

If you have additional questions, please post them here or send me a private message.

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