When we live, eat and breath life insurance every day, even the best intentioned of life insurance agents may get caught assuming that you already know what is basic to them. The problem comes when you have a misconception of the truth and it changes the whole picture for you. Here are six examples of common misconceptions.
1. That you really know what term insurance means! It never occurred to me that someone might think that if they have a 20 year term, they are stuck paying for 20 years whether they need the life insurance anymore or not. The only one locked into the term life policy is the company. They are contractually obligated to offer the insurance at a guaranteed rate for the term requested. As a policy owner you can cancel the policy at any time with no penalty. If someone thought they were buying into something that they couldn’t get out of for 20 or 30 years, that could be of some concern.
2. That someone would think that life insurance without an exam means that there is no medical underwriting? No! It simply means that the company is willing, at a higher price than most people would normally need to pay, to forgo the information they would receive from an exam and lab work. They still can and do order medical records. The end result is still underwritten based on your medical history. (This is not to be confused with guaranteed issue life insurance covered in a previous post)
3. That you don’t understand you will be tested for nicotine! During our initial interview we always ask “have you ever used tobacco or nicotine products of any kind”. It’s a broad question meant to help us guide you to the best possible price. Tobacco or nicotine products would include cigarettes, cigars, chew, nicorette gum, the patch, etc. I have seen more than a few people surprised when they come back positive for nicotine because they didn’t divulge tobacco or nicotine use other than cigarettes. Some smoke cigarettes and just think it won’t be discovered.
4. That the insurance company won’t acquire your medical records! When a person applies for life insurance they sign an authorization for the release of records, but they often don’t think that through. It is not uncommon for pertinent information to be left out of an initial interview or exam because it was ” a long time ago” or they “didn’t think it was important”. We always end our interview with, “is there any thing else that might be contained in your medical records that could possibly affect your rate?”
5. That if you pay money with the application, it binds the company to coverage! What we are talking about here is call a “conditional receipt”. The operational word there is “conditional”. If you were to die during the application process, the policy would pay as long as all the conditions of the conditional receipt are met. Generally that means that any required exam has to be completed and the big one that most people don’t understand is that the policy has to be approved as applied for. If you apply at preferred rates and then you die having met all the other conditions, the company will obtain your medical records and finish underwriting the policy. If, after reviewing everything, you are approved at worse than a preferred rate, the money is returned to your beneficiary since the last condition was not met. Your coverage does not go into force.
6. That if you are declined, you are black balled! My agency has built it’s foundation on finding coverage for those who have been declined by another company. Being declined by one company has no bearing on what another company will do. Each company has different underwriting criteria and the truth is that they don’t care what other companies think. I have seen declines from one company turn into preferred rates from another company.
Bottom line. If you have any sense that you don’t fully understand something, ask your agent to explain it until you do understand.
This post is somewhat dated. Life insurance underwriting is changing and evolving continually. For more updated information check out some of the key word links. If you have a specific question or topic you need information for do a search. If you don’t find the answers you need contact me and we’ll make sure you get the information that is important to you.