It’s a scenario that John Buenger encounters too often in his independent insurance agency.
People see an advertisement for life insurance on TV, but when they ask for more details, the police are not what they expected.
“The fine print in these ads flies by so quickly that when people call for more information, the terms are totally different than what they had in mind,” says Buenger, of the Rice Agency in Hagerstown, Maryland. .
At first glance, life insurance seems pretty simple in that all products follow the same general setup: you pay the insurer’s premiums and, if you die, the insurer pays your heirs a death benefit. . But there are different types of life insurance, and the difference between the products isn’t always clearly explained in a 30-second ad.
The most common television commercials are for guaranteed-issue life insurance policies, says Kelly Maxwell, owner of insurance brokerage Seniors Mutual in Pflugerville, Texas. Since these policies do not have a medical exam or health care underwriting, anyone can easily qualify. “Insurers can potentially set up a policy in five minutes over the phone,” says Maxwell, with lifetime coverage.
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If you are in good enough health and want to have a medical exam, there are cheaper options. In fact, even applicants with moderate health conditions, such as high cholesterol, can qualify for a lower price after passing a health exam.
Guaranteed issue policies are often used to cover funeral expenses, as the amount of coverage you can buy is limited, usually up to a maximum of $25,000, whereas policies with a medical could insure you for six or even seven digits.
There are other drawbacks. Guaranteed issue policies do not pay a death benefit in the first few years. For example, a policy may state that if you die for any reason within three years of purchasing it, your heirs will receive only the premiums plus interest, not the stated death benefit.
“Insurance ads tend to gloss over these downsides,” says Rafael Rubio, president of Stable Retirement Planners in Southfield, Michigan. would receive a better offer by applying with a medical exam.
Life insurance that requires a health exam generally falls into one of two categories: term or permanent. The term is term life insurance.
It lasts from one to 40 years depending on the term, with the quoted rate guaranteed only for the duration of that term. If you survive the term, coverage ends. Depending on the contract, you may be able to renew, but the premiums will cost more because you’re reapplying at a later age, when you may also have more health issues.
Permanent life insurance, however, does not expire as long as you continue to pay premiums. The flip side is that because these policies are more likely to pay a death benefit, they initially charge more than a term life insurance policy, about five to 15 times more at first. Therefore, only smaller coverage amounts can be affordable.
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