Got a question about life insurance policies? You’re not the only one! People all over the country find themselves in a tizzy when it comes to getting adequate life insurance cover, which is exactly why we address the 50 most frequently asked questions below. Let’s start with the basics.
- What is life insurance?
Life insurance is a legal contract between an insurance policy holder and an insurance company whereby the insurance company agree to pay named beneficiaries a specific sum of money in the event of the death of the insured.
- How do I know if I need life insurance?
If you have loved ones around you, you have a need for life insurance as you have a need to ensure that your loved ones are financially protected in the event of your death. While you may not have a spouse or family to consider now, you may do so in the future and therefore it is important to consider the financial protection of your future family.
- How do I get a life insurance quote?
Life insurance quotes can be obtained online, over the phone, by post, from a broker, from a sales rep or in person at the office of an insurance company. To obtain quotes from several insurance companies, the easiest means of doing so may be to contact a life insurance broker.
- How do I choose a life insurance provider?
You should not only consider the price of the premium and the cover offered but you should also think about the level of expertise and customer care offered by the provider. Also consider how long the provider has been in business and research their reputation as a life insurance provider.
- Do I need life insurance to take out a mortgage?
Life insurance is a very typical stipulation for being approved for a mortgage by financial institutions as it provides them with some security that your mortgage will be paid in the event of your death before the end of the mortgage period.
- Can I take out multiple life insurance policies?
Yes, you can take out multiple life insurance policies from the same or other life insurance providers. It is not uncommon for people to take out both term life insurance and whole life insurance policies.
- In the event of my death, will having multiple life insurance policies effectively just cancel each other out?
No. Once you have been meeting payments for multiple life insurance policies, all policies will pay out to the designated beneficiaries in the event of your death.
- I already have life insurance – can I change provider?
Circumstances can always change therefore it is worth reviewing your life insurance policy. Although there may be costs involved in changing insurance providers, the overall long-term savings make the move worth it.
- Why should I review my current life insurance policy?
If you are recently married or divorced, if a child/grandchild has been born or adopted, if you have purchased a new home, started a business, acquired a mortgage or have retired, it may be worth reviewing your life insurance policy immediately.
- How often should I review my life insurance policy?
Outside of significant life events, it is advised to review your life insurance policy at least every 12 months.
- What are the main types of life insurance policies available for purchase?
There are several life insurance offerings on the market. However, there are two core kinds of life insurance that’s most common: term insurance and whole life insurance.
- What is term life insurance?
Term life insurance provides death benefit protection for a specified period of time such as 5, 10, 15, 20 or 30 years. Benefits are only paid if the insured passes away within the specified term.
- How long can term life insurance policies be granted for?
Term life insurance policies are usually granted for periods of 10 to 30 years.
- How do I choose the term period for term life insurance policies?
If you are quite young, your children are young or you have many years left on your mortgage, one should consider a 20 to 30-year term period. If your mortgage is nearing its completion, your children are older and you are nearing retirement, consider a 10 or 15 year term period.
- What coverage does term life insurance offer?
A typical term life insurance policy will cover death by any cause at any time in any place, except for death by suicide within the first 2 years of the policy or in some cases, death by suicide may not be covered at all – be sure to check with your provider.
- What is whole life insurance?
Permanent whole life insurance policies will pay out on the death of the insured, whenever that is. Payments can continue as long as the insured remains alive.
- Do I pay the same premium throughout my life with a whole life insurance policy?
Yes, the premium quoted at the beginning of your whole life policy is guaranteed to remain the same for the duration of the policy, regardless of your growing age or deteriorating health.
- What is group life insurance?
Some companies may offer employees the option of acquiring life insurance policies as an employee of the firm. This form of insurance is called group life insurance, simply because you’re getting insured as part of a larger group. Usually the premium is deducted from your pay cheque and can work out more affordable than an individual policy.
- Why should I consider individual life insurance in addition to group/employer life insurance?
If you lose your job or leave the company, you will effectively lose your group/employer life insurance policy. Therefore, it is advisable to also consider taking out an individual life insurance company alongside a group policy.
- What is universal life insurance?
Universal Life Insurance policies allow you to pay different premium sums subject to specified minimum and maximum amounts and to adjust the amount of insurance up or down as required, subject to underwriting from your insurance provider.
- What is single payment life insurance?
Single Payment Whole Life insurance is a form of insurance you can purchase with a one-off payment. It is a good option for people looking to transfer some of their wealth wisely as the death benefit will always be higher than the original single payment.
- How much life insurance coverage do I need?
To determine how much life insurance coverage you need, determine how much money your surviving loved ones will need after you have passed away and how much money will be needed to pay off any current debts, mortgages etc.
- Will I have to take a medical exam?
Not all life insurance companies will require applicants to take a medical exam. Some may request a declaration of health from your own doctors; others may just go on your declaration of health. To ensure you obtain the cheapest quote possible, it may be advisable to undergo a medical exam.
- What does a medical exam for a life insurance policy consist of?
During a medical exam for life insurance, the doctor will usually record your height, weight and blood pressure reading as well as take a urine sample and blood sample.
- I’m young and healthy with no children – why do I need life insurance?
The best time to begin a life insurance policy is when you are young and healthy as you can lock in low premiums that you can maintain for the rest of your life, even as you age and/or your health deteriorates.
- Can I get life insurance while pregnant?
Some insurers may not offer policies to women while pregnant but you will find that the majority of providers do and that pregnancy will not have any impact on your premium.
- How is a life insurance premium calculated?
A life insurance company may take several factors into consideration when calculating your premium including your age, weight, medical history, family history, lifestyle, occupation and whether you are a smoker/non-smoker.
- How much will life insurance cost?
Costs will vary greatly from provider to provider and from cover to cover. The price your neighbour, brother, mother or colleague pays for life insurance could vary greatly from your own premium.
- What is a premium loading?
A loading is an additional charge on a top of a standard premium, applied to reflect the increased risk being taken on by the insurer insuring the applicant.
- Who is the “policy owner”?
The policy owner is the person who owns the life insurance policy and is usually the person that’s insured. However, the policy owner may also be a family member or other person with “insurable interest”.
- What is a beneficiary?
A beneficiary is the individual/organisation to whom your life insurance benefit is paid in the event of your death. A beneficiary will typically be a spouse, child, friend or partner of the insured.
- What is a cancellation clause?
A cancellation clause is an insurance contract that allows the insurer and/or the person insured to cancel the contract before it expires. The clause may include an agreement to refund the remaining/part of the remaining premium.
- What does duty of disclosure mean?
Duty of disclosure is the duty of the insured to be completely truthful when completing an insurance policy.
- What do insurance companies mean by underwriting?
Underwriting is the term used to describe the process that an insurance company uses to determine the cost of providing coverage to applicants it is willing to insure.
- I have a serious illness – can I get insured?
A serious illness does not mean that you cannot claim life insurance. There are life insurance companies who are prepared to insure those with serious illnesses.
- What happens if I develop a serious illness after my life insurance policy has been agreed?
You should notify your life insurance provider if you develop a serious illness in order to arrange the possibility of accelerated death benefits. In many cases, your premium may not be affected.
- What is meant by the term “death benefit”?
A death benefit refers to the amount paid to the beneficiary/beneficiaries of a life insurance policy in the event of the death of the insured.
- What are accelerated death benefits?
Life insurance policies may include a provision that allows a terminally ill insured person to collect a large portion of their policy benefits while still alive. This provision is known as “accelerated death benefits”.
- Will death benefits adjust for inflation?
This varies from provider to provider, some companies will adjust policies in accordance with inflation; other companies will offer inflation protection as an additional cost.
- Can someone take out life insurance on my life?
Only those who have an “insurable interest” such as members of your close family or business partners may take out a life insurance policy on your behalf.
- What does “insurable interest” mean?
Those deemed to have an insurable interest are people who would experience financial loss in the event of the death of the insured.
- What does “face amount” mean?
The face amount of a life insurance policy is the amount of the death benefit to be paid in the event of the death of the insurer.
- What happens if I fail to meet life insurance policies?
A life insurance policy will typically state a grace period, which is the maximum period in which a premium can be paid before interest will be applied. Failure to pay within the grace period may lead to the termination of a life insurance policy.
- What does cash value mean?
While the face amount refers to the amount of the death benefit that your beneficiaries would receive in the event of death, the cash value is the value that builds up in the policy. Your policy as such, can assume equity during the course of its duration.
- What happens to the cash value of my policy if I die?
When you pass away, a life insurance company will typically pay only the specified death benefit to your beneficiaries. No more than the specified death benefit will be paid, therefore the cash value will be considered null and void.
- How can I find out the cash value of my life insurance policy?
Insurance companies are required to clearly state the method they use to compute cash values and list the amount of the cash value of the policy after every year that the policy is live. You must submit a written request to your insurer for confirmation of the cash value of your policy although many providers do send an annual statement of policy cash values without request.
- What is a convertibility clause?
Where a convertibility clause exists in a term life insurance policy, this allows the insured to convert from a term life insurance policy to whole life insurance cover without having to undergo a medical exam.
- What if my life insurance needs change?
Life insurance needs are always subject to change and for this reason; it is advisable to request the inclusion of a convertibility clause if taking out a term life insurance policy.
- Should I purchase life insurance for my child?
Generally, the own purpose of your life insurance policy is to ensure that your children are covered financially in the event of your death. Having said this, taking out a life insurance policy for your child may provide them with the opportunity to take over a life insurance policy with very low premiums when they grow up.
- Should I purchase life insurance for my parents?
It is a wise idea to take out a policy on your parent’s behalf as their death may greatly affect you financially, especially if you are their carer or if they help you out financially.