Twenty things you should know about life insurance

So much confusion is caused by word of mouth and outdated information. Here are some vital pieces of information you should know about the life insurance industry.

  1. After a policy is inforce, if a medical problem comes up, they can’t change the pricing of the policy during it’s guarantee.
  2. Life insurance policies can only be contested for the first 2 years.
  3. The person whose life the insurance is based on must consent to the policy being written.
  4. Life insurance policies are backed at the state level like bank accounts are done by the FDIC.
  5. The owner of a life insurance policy has control over it. If he/she wants to sell it they can and the issuing company can’t stop them.
  6. Insurance companies are required to get their pricing structure approved by each insurance commissioner in the state they wish to sell it. Sometimes you will see one state that doesn’t accept a product available elsewhere.
  7. There are in excess of 2000 insurance companies selling life insurance.
  8. You can leave a life insurance policy at any time. You are not tied to any contract.
  9. Captive agents represent insurance carriers to clients, brokers represent clients to the carriers.
  10. Insurance companies get audited to make sure they are treating people with the same issues the same from one policy to the next.
  11. Life insurance exams must be performed or supervised by independent 3rd parties.
  12. Suicide is a contestable issue, therefore it is only reviewed during the first 2 years (see #2)
  13. Insurance agents must hold licenses in the state that the policyholder lives.
  14. The insurance application, the exam and the delivery of the policy must all occur in the same state.
  15. An inforce policy that is transferred into a state that it is not approved for, usually because the policyholder moves to that state, is still valid and the new state must accept all the guarantees written in the contract.
  16. Montana requires that all life insurance policies are unisex. Therefore, all pricing is done at the higher price of male or female.
  17. Life Insurance policies are not considered part of an estate so a) they don’t get taxed, b)can’t be seized to pay for debt, c) can’t be contested by beneficiaries.
  18. Insurance carriers actually target specific underwriting categories as their ideal clients, and they aren’t all healthy people.
  19. Diabetes has seen some of the greatest changes in insurance underwriting in the last 5 years.
  20. Cash value is counted in the death benefit of a policy, not in addition to it. Therefore, a $500,000 policy with $100,000 cash value only has $400,000 of insurance.

This is helpful information; thank you for posting.

While you may not have wanted to see questions in response, I wonder if you have specific recommendations with regard to selecting a carrier? I will turn 50 this year, and hope not to be crushed by the AARP packet that I know is on its way; any particular benefit to obtaining insurance through what apparently is the largest and most powerful lobby in Washington?

Great info.