Using Life Insurance Wisely

Every family should have a life insurance policy on at least one of the financial providers. A policy should always be in place in case one of the primary breadwinners passes away so that the family will be able to support itself if no other source of income is available after the breadwinner dies.

Estate or Death taxes can be as high as 55% when the insurance policyholder dies. Many families cannot afford to pay these steep taxes and still maintain the lifestyle that they are accustomed to. Therefore, we have compiled a few tips to help ensure that your family can maximize the benefits they receive from your life insurance policy – and avoid giving so much of it to the government.

First of all, you should know that a portion of your estate will be given to your beneficiaries with a tax exclusion. The number of dollars covered by the exclusion each year varies, but heres a brief overview: in 2004 and 2005, the exclusion was $1.5 million per person. From 2006 through 2008, the exclusion is $2 million, and, in 2009, the exclusion is $3.5 million. The estate tax is repealed for the year 2010, but the tax returns with an exclusion of $1 million in the year 2011. Now, that can get confusing!

Because the government can take so much of your estate for taxes, its important to shield as much as possible with the use of a variety of Trusts. One such Trust is the Irrevocable Life Insurance Trust, otherwise known as the ILIT.

When you establish an ILIT, you will name a trustee to manage that trust. Your trustee can be your financial advisor or a beneficiary. Your trustee will purchase a life insurance contract on your life. Upon your death, the policys death benefit will provide liquidity of the assets in your Trust.

With your ILIT, you can control how the estate is divided and spent. Having the ability to control your own estate, post-mortem, may prove to be especially helpful if you have young adults who are going to receive a sizeable sum of money. You can, for example, enumerate which funds will be spent for education, which for costs of living, and which for other activities. Thus, you can allocate portions of your estate for any activities you wish.

You can also transfer ownership of the life insurance policy you already own. However, there are complications that may arise from the transfer. You will want to consult a qualified attorney to ensure that you fully understand how the system works. For example, if you die within three (3) years of transferring ownership of your existing policy, the life insurance policy will be taxed as part of your estate.

With the right help, figuring out how to handle life insurance (and your estate in general) doesnt have to be difficult or complicated. Consult a qualified attorney for more information on how to set up your ILIT or other Trusts so that your beneficiaries can receive the most benefit from your assets.

Life Insurance Companies

Insurance is all about the evaluation of risk and it is something that life insurance companies know a lot about. Every time life insurance companies receive an application for a life insurance policy, the companies decide how much of a risk that applicant poses to their business. This is to say that the insurance companies make an educated estimation of how long the applicant is likely to live versus how many insurance premium payments they are likely to make before death occurs.

If they believe that the applicant will live long and will therefore make a substantial number of insurance premium payments during his/her life, then life insurance companies see the applicant as low risk to their business. However, if life insurance companies believe that an applicant could die soon, and therefore make relatively few insurance premium payments while they are alive, that candidate will be seen as a higher risk by the insurance companies.

How life insurance premiums are calculated

When calculating life insurance premiums two factors are considered by life insurance companies. The first factor involves an evaluation of the general likelihood of death occurring at a particular age, and involves the scaling of applicants against normal life expectancy. This sets the ‘average’ risk level that different age ranges attract needless to say that the closer you are to your average life expectancy then the higher the risk level that you’ll be measured against.

The second factor is based on whether the applicant is above or below their average risk level for their age. Someone who has an unhealthy lifestyle, suffers from pre-existing health conditions and is in a stressful job is likely to be classified as ‘above average’. On the flip side, someone who goes to the gym regularly, does not smoke and eats a balanced diet is likely to be seen as ‘below average’. Naturally, those who are below average risk will see keener insurance premiums on their life insurance policy for their age than people who are classified as ‘above average’.

Cheaper life insurance?

While there is often little we can do about pre-existing health conditions, there are ways in which to tip the scales in our favour of cheaper life insurance. This we can do by altering our lifestyle and striking a better work-life balance in a stress-free environment. Changing lifestyle habits though can be more effective for some than it can for others.

For instance, a person in their 20s living out an unhealthy existence is likely to be seen as less of an insurance threat for their age to life companies than someone in their 50s with the same unhealthy lifestyle. This is because the body of a 20-year-old will respond more efficiently to improvements in lifestyle than will the body of a 50-year-old. In essence therefore, there are different degrees of being above average and below average, making the calculation of life insurance premiums for each individual definitely a job for the experts at the life companies!

Life Insurance Elements

Expect questions in detail regarding your way of life, planned foreign travel destinations, your family health history and your personal health history. Do you intend to scuba dive? Have you had parents or siblings with heart disease or cancer in advance era 60? Have you ever taken any medicine for anxiety or depression? These, and further, are the kinds of questions to expect.

Sometimes multiple interviews are required in order to establish your data. The paramed examiner typically asks these questions face-to-face and often insurance companies will conduct follow-up telephone interviews so that you be able to establish the initial set of answers. Regardless of the type of life insurance you pay for, the majority policies oblige you to meet specific tips regarding your way of life and health history.

If it sounds tempting to shortcut this process by fudging on an answer or withholding knowledge, don’t do it. It’s a crime in all 50 states to lie about or conceal information on a way of life insurance application. What’s more, policies obtained through fraud can be voided at claim era.

Insurers will likely report your medical exam results (reported because numbered codes) to the Medical Information Bureau (MIB), which maintains a database of those who eat applied for way of life insurance in the last seven years. If you’ve given disparate answers to medical questions in the past, it will raise a red flag using the MIB. The goal of the MIB database is to reduce fraud.

All straight way of life insurance policies commonly cover death by any create at any era in any room, except for death by suicide inside the initial two policy years (specified year in various states).

If you don’t care to go from initial to last the underwriting process, you consume two other, more expensive, options:

* Simplified issue life insurance be able to be purchased after answering only a few medical questions. There is no medical exam required. However, if you report health problems, you will likely be declined. Also, if you are fit, or even if you eat several unhelpful medical history, an underwritten policy is but going to be your least expensive.
* Guaranteed issue life insurance is sold to anyone who applies (up to an era limit) and is by far the most luxurious way to buy lifestyle insurance. This must be considered only by those who are declined for everything else yet on the other hand demand life insurance. These policies consume graded death benefits, meaning your beneficiaries won’t receive the full death benefit until several years into the policy.

In naming a beneficiary, keep in mind that the life insurance business will want to see only the names of those who are financially dependent upon you. An acquaintance, friend or relative, lacking of a financial relationship, will not do.

Working with an agent

After reviewing the various way of life insurance policies offered, you might on the other hand be unsure about which superlative meets your desires. The American Council of Lifestyle Insurers (ACLI) recommends consulting an insurance agent. ACLI spokesman Jack Dolan says an agent can advise policies that will meet your wishes. \”Appear at the suggested policy with care to be positive it fits your personal goals,\” Dolan says.

Carefully study your agent’s recommendations and ask for a point-by-point explanation. Make sure the agent explains items you don’t appreciate. For the reason that your policy is a legal document, it is central that you identify what it provides.

Insure.com offers these recommendations for deciding which style of way of life insurance to purchase:

If your agent recommends a term lifestyle policy, ask:

* What is the Conventional & Poor’s, A.M. Greatest, Fitch, Moody’s and Weiss ratings of this insurance company?
* What is the original rate-ensure existence? Is this policy renewable past the preliminary rate-ensure existence devoid of a physical exam? If so, what are the premiums?
* Is this policy convertible to lasting insurance devoid of a physical exam? If so, for what existence of era do I consume the appropriate to convert?

If your agent recommends a cash value policy, ask:

* What is the Straight & Poor’s, A.M. Finest, Fitch, Moody’s and Weiss ratings of this insurance company?
* Be able to you tell me, in writing, why you are recommending cash esteem insurance for me at this era?
* Why should I combine my way of life insurance protection wishes using my asset objectives?
* Can you please prepare an analysis for me that shows the true price of this cash value insurance policy over 5, 10, 15, 20, 25 and 30 years vs. buying term way of life and investing the differentiation in long term bonds over those similar era periods?
* How a lot is your initial-year commission on this proposed cash esteem policy vs. your commission on an equivalent term way of life insurance policy?
* Are these proposed annual premiums within my budget?
* Why do you think that I be able to commit to paying these premiums over the long term, perhaps decades?
* How a lot will I receive if I surrender the policy?

More Resources

* Consumer Federation of America’s Insurance \”Rate of Return\” Service
* Insurance Knowledge Institute: Determine about lifestyle insurance
* Your state’s department of insurance may also eat life insurance shopping guides online
* For a free life insurance quote or additional facts on the types of life insurance offered, please visit Insure.com.

Amy Danise is a staff writer for Insure.com. Visit Insure.com for a comprehensive array of comparative auto, lifestyle and health quotes, including a vast library of originally authored insurance articles and decision-making tools that are not offered from any other single source. Insure.com is devoted to providing impartial insurance knowledge to customers. Guests can obtain instant quotes from extra than 200 leading insurers, achieve maximum savings and consume the freedom to pay for from any business shown.

Is Life Insurance Is A Con?

Is life insurance cover a big con or are too many people using this fallacy to cover up a mistake on their own behalf? There are many questions when it comes to life insurance cover and the most common is usually how much a beneficiary will be paid should the policy holder die. It is a simple enough question and one of the most important factors to consider, but the terms and conditions of the policy plus filling out a form accurately is just as vital and are too often overlooked as secondary issues when creating cover while the majority focus solely on the payout clauses.

Why the payout amount is just one thing to consider…

There have been many horror stories over the years where people have faked their own deaths in the hope their partners will receive the benefits from their policy, but many others are filled with stories of cons and rip offs that make many think life insurance cover is a huge mistake.

More often than not the main reason people shout for the heads of the companies offer life insurance cover is because they lied or made an honest mistake when filling out the paperwork for their policy. Terms and conditions are often overlooked in favour of the payout amount and as such, policy holders (or those left behind) end up feeling ripped off when the payments are not quite what they presumed they would be.

Application form inaccuracies are not the same as being conned…

Case 1 – A woman from London attempted to sue her life insurance broker after her husband died from liver failure and his policy was never paid out. Unfortunately his policy was never valid as he had written his date of birth incorrectly and lied about his income levels, which as per the terms and conditions of the policy made it invalid. His wife failed in her bid to sue.

Case 2 – Lying on a form can be just as destructive. In France two years ago a man was diagnosed with lung cancer but with no health insurance the British-born man travelled to London to visit a life insurance broker. The man in question was found to have fraudulently taken out insurance because he lied on the form and said he was in good health after already being diagnosed with lung cancer in France. He later died from his cancer and left his family in debt for his treatment costs.

John Darwin – A canoeing con man

The recent case of John Darwin shows how the tables can be turned. The British man was thought to have died in a canoeing accident, but turned up safe and well five years later claiming not to remember anything. An investigation led to the discovery that Darwin had been staying in the bed-sit next door to his wife and was able to get into her room through a secret hole in the wall facts even their grown children were unaware of. Both are currently serving jail time.

So conning can happen on both sides and as long as the paper work is accurately filled out with honest answers and the terms and conditions are adhered to the beneficiary is unlikely to encounter any problems.

Life Insurance Lies

The price of your life insurance policy often depends on your answers to a range of application questions, plus the results of your life insurance exam and personal medical records. Some applicants succumb to the temptation to lie on their applications, hoping their misrepresentations will sneak through the approval process and garner them lower rates. If a life insurance company finds out a person lied about past information and then dies due to a related cause, there are two outcomes: The company could alter the death benefit to be equal to the amount the person would have gotten with a rated policy, or the company could rescind the entire policy. An insurance companys range of remedies depends on specific state laws. Here are some of the most frequent lies discovered by life insurance companies in screening applications.

I dont use tobacco: The desire to get affordable life insurance drives many applicants to not only check the non-tobacco boxes on their applications but to also abstain for several weeks before their medical exams so that nicotine does not show up in their lab results. This lie pops up more than anything elseand some applicants lie unintentionally. Applicants who use nicotine in other forms, such as a patch or chewing tobacco, may not realize they are in the tobacco category. In their own minds they are not tobacco users, but in life insurance companies eyes they are.

Im not depressed: Neglecting to mention depression is common. Depression can be impossible to detect by an agent or the paramedical examiner who performs the medical review. However, any medical diagnosis of depression will be apparent in your medical records.

Ive only had that one DUI: Lying about drunken driving happens, but lies about the second, third, or fourth offense are the most common. The also applies to traffic or moving violations such as speeding.

Theres no cancer in my family: An applicants own history of canceralong with cancer among immediate family memberswill result in a higher life insurance costs, increasing the temptation to fudge. Any personal history of cancer is no doubt in your medical records, and so is family history.

I dont plan to travel anywhere dangerous: The number of applicants who misrepresent their travel plans has increased, especially as more parts of the world become dangerous. Applicants will sometimes adjust their plans, saying theyll be traveling in a dangerous land for only two weeks when in fact they plan to reside there for an extended period of time.

I make $100,000 a year fixing cars: Some people will lie about their income in order to receive more coverage than they are eligible for. A couple may claim that the husband is a self-employed mechanic making $100,000 a year and the wife is a self-employed housekeeper making $50,000 a year. When red flags go up in a case like this, insurers may pull a credit report or ask the applicant to fill out a financial supplement that details assets, liabilities, and other information.