While many people understand that the purchase of life insurance is an essential part of any good, solid financial plan, there are several important factors that should be kept in mind prior to moving forward with obtaining a policy. These include:
How to Choose a Life Insurance Policy Beneficiary
Life insurance is the highest form of integrity that can be offered to loved ones – and it shows that the insured intends to honor his or her financial commitments – even after they have passed on.
With this in mind, the primary beneficiary is the person or persons who will receive the policy’s death benefit. These are the ones who will be paid the entire amount of the death benefit by the insurance company. If there are multiple primary beneficiaries, it will be necessary to divide how the benefit will be received. This can be done is one of several ways.
One way to do so is via a per stirpes distribution. In this manner, the death benefit will be divided up “by representation,” or according to who is closest in relationship to the insured person.
Another method is through per capita. Under this distribution scheme, the death benefit is divided up by the total number of individuals. If an individual predeceases the insured, then the remaining beneficiaries will all receive a proportionately larger sum of the death benefit, but the deceased’s heirs will not receive anything.
There may also be a selection of contingent beneficiaries. These are sometimes referred to as “secondary” beneficiaries. These are the beneficiaries that receive the death benefit proceeds if the primary beneficiary or beneficiaries predecease the insured. Just as with primary beneficiary distributions, contingent beneficiaries may receive money according to a per stirpes or a per capita distribution scheme.
There is no one right or wrong way to set up a beneficiary designation. This is because all situations are different. Therefore, it depends on each person and family’s specific goals and needs as to which manner works best for them.
Understanding Life Insurance Company Financial Ratings
Many factors go into choosing the right life insurance company for your specific needs. Because life insurance is a long term commitment, you will want to make sure that you are selecting a provider that will meet your needs. You will also want a company with a proven history of financial stability.
When considering an insurer for your life insurance coverage, you will of course want to review the company’s premium pricing, its policy offerings, and the consumer ratings. But you will also want to research the company’s overall financial health. In doing so, there are several resources that can help you accomplish this. By researching the company’s financial health, you can gain assurance that it will be there for you over the long haul.
One of the best resources for helping you to determine the financial strength of an insurer are the ratings agencies that exist that provide ratings to insurance companies. While each agency looks at slightly different criteria, by reviewing the ratings of a given insurance company across all financial rating agencies, it is easy to come up with a clear picture of the company’s overall financial health.
The primary ratings agencies include:
- A.M. Best – A.M. Best is the only agency to focus solely on the credit worthiness of insurance companies. This agency offers 15 separate credit ratings, ranging from A++ to F, depending on the insurer’s financial health. Any insurer with a rating of B or below is typically considered to be vulnerable.
- Fitch Ratings – Fitch Ratings also assigns letter grades to insurers based upon their financial strength and claims paying ability. These grades range between AAA as the highest and D at the low end, meaning that a company has defaulted before and has a high risk of doing so again.
- Moody’s – Moody’s assigns ratings of between Aaa to C, based on the insurer’s financial strength and claims paying ability.
- Standard & Poor’s – Standard & Poor’s ratings range from AAA, meaning that an insurer has an “extremely strong capacity to meet its financial commitments” to D, meaning that the company has “payments default on financial commitments.”
What to Expect During the Application Process
When applying for life insurance coverage, going through the application process will be necessary. The application for life insurance will ask a number of personal questions regarding health, occupation, hobbies, and lifestyle – and it is important to be as truthful as possible when answering these questions so that the insurance underwriters can obtain the clearest picture possible regarding your current health.
Prior to applying for life insurance coverage, there are several things that it is important NOT to do. These include:
- Visiting the doctor. Going to the doctor prior to applying for life insurance could be taking the risk of discovering a health issue – an issue that will be required to be disclosed on the application for coverage. Depending on the condition, it could cause the premium to be much higher – or could even cause the application to be declined altogether.
- Smoke – Smoking can have a big effect on life insurance premium rates. Therefore, even smokers who quit for a few days can have drastically improved vital signs. Therefore, even though smokers will still pay more in premium than non-smokers, those who show good health signs could get a preferred tobacco rate as opposed to a standard.
- Take an exotic vacation. It is usually better to wait until after a life insurance policy has been in effect to take an exotic vacation. This is because insurance companies don’t like when policy holders plan to go to politically unstable areas or places that are known for disease.
How the Medical Exam Works
When applying for life insurance, people are often concerned about the medical exam that they are required to take before their policy can be instated. However, these exams are quite common when applying for life insurance coverage.
Typically, very basic medical exams are conducted by paramedics or traveling nurses who come to the applicant’s home. These professionals are engaged by the insurance company to perform these routine tests which are essentially standardized throughout the life insurance industry.
Through these exams, height, weight, and blood pressure are examined. In addition, a blood sample is also typically drawn. This sample will provide the insurance company with the information that they need in order to make basic assessments regarding the applicant’s health, including data on:
- Heart Condition
- HDL (“good” cholesterol)
- LDL (Low Density Lipoprotein, or “bad” cholesterol)
- Cholesterol / HDL Ratio
- LDL / HDL Ratio
- Total Protein
- Bilirubin and Albumin
In some cases, the insurer may also require an EKG in order to obtain additional information.
It may take several weeks for the exam results to be reviewed. The applicant will be provided with a copy of the results, as well the applicant’s health care provider. The insurance company will review the results, along with other potential risk factors, and will then make their decision regarding whether or not to offer the applicant coverage. If so, the results of the exam may also play a role in the premium rate that the individual will be charged for his or her policy.
Taking the Next Step
When ready to take the next step and apply for life insurance coverage, it is best to work with someone who has access to numerous life insurance carriers. This way, you will be able to compare a wide variety of different policies and insurer in order to determine which will be the best one to cover your specific needs.
This is especially the case if you have an adverse health condition, a risky occupation, or participate in a high risk hobby such as skydiving or rock climbing. Working with an agency that is already familiar with which insurers are more apt to take on certain types of risk can save you a great deal of time and frustration throughout the application process and can help to get you and your loved ones the right amount of protection that you need. You can compare rates for life insurance right on our website, BestLifeQuote.com.