The Top 10 Life Insurance Questions Answered
You’ve reached a point in your life where you should probably get some life insurance coverage, but the problem is, you don’t know where to start!
As an independent life insurance agency, we speak with a lot of people daily. We gathered the most frequently asked questions about life insurance that we get, and are here to give you some answers.
So without further ado, here are your top life insurance questions answered.
Quick Article Guide
Here’s what we'll cover in this post:
- 1. How Do I Determine My Rate Class?
- 2. What Do Life Insurance Companies Test for?
- 3. Do I Need to Take a Medical Exam?
- 4. Does it Cost Me Anything to Apply?
- 5. Broker vs. Independent Agent: Which One Do I Go With?
- 6. Is Life Insurance Tax-Free?
- 7. Can the Insurance Company Change My Rate if My Health Changes During the Term Period?
- 8. What Term Length Would Best Fit My Situation?
- 9. How Long Do I Have to Wait Before I’m Covered?
- 10. What Happens at the End of the Term?
1. How Do I Determine My Rate Class?
A little background info: every life insurance company has a rating system in which they place their applicants into, depending on their individual health statuses. The four main rate classes include preferred best, preferred, standard plus, and standard.
When you apply for life insurance, you typically have to undergo a medical exam as part of your application (unless you apply for a no exam policy). During the exam, a health practitioner will measure your height, weight, blood pressure, and other vital components. The whole process usually takes about 30 minutes.
In addition to your exam results, life insurance underwriters look at your age, past medical history, lifestyle choices, and any hazardous hobbies or occupations you may have. With all of that information, your rate class is decided.
Here are the basic guidelines to each rate class:
This is the highest rate class that you can be placed into. Generally, people in this class are in exceptionally good health - they don’t have any poor medical history, aren’t taking any medication, their family history is free from any diseases, and are within the guidelines for height and weight. Only about 5% of people qualify for this rate class.
This is the second highest life insurance rate class, and is a little more lenient than preferred best. Within this category, most people are still within the height and weight guidelines and are in great health, but may possibly have a few minor health issues being controlled with medication. This class is also more lenient when it comes to your family’s medical history and any hobbies or occupations that may be risky.
For this rate class category, you’re still considered to be in better-than-average health, but may have a few health issues. You may fall a little out of the weight and height guidelines, but have no history of family illnesses.
Believe it or not, this is the most common rate category for life insurance applicants. If you fall into this category, you are considered to be in average health with some health issues, maybe taking multiple medications. You don’t have to fit the guidelines for weight and height in this category, and it is okay if you have a family history of illnesses.
2. What Do Life Insurance Companies Test for?
Like we mentioned previously, when you apply for a life insurance policy, more than likely you will have to undergo a medical exam. The exam is totally free, and you can either choose to have it performed at home, at work, or at the doctor’s office.
During this process, a licensed nurse or phlebotomist will measure your height, weight, blood pressure, and obtain a small blood and urine sample. In addition, if you’re over 50-years-old and applying for more than $1 million of coverage, the examiner may also conduct a mobile EKG test.
After completion of the exam, a copy of your results (as well as your medical records and application) will be sent to the life insurance company’s underwriter for review.
Most companies will mail you a copy of your results a few weeks after the exam. It’s always a wise idea to forward a copy of them to your physician so you don’t have to pay for lab tests or give blood again at your next annual physical.
3. Do I Need to Take a Medical Exam?
Some people aren’t into the idea of taking a medical exam, and we don’t blame them. Getting poked with a needle isn’t exactly a fun time. If you’re in relatively good health and see your doctor on a regular basis, you may be able to apply without taking the exam.
However, if you aren’t in great health or haven’t been to the doctor in a while, it’d probably be best to take an exam to secure an affordable policy. Life insurance companies tend to be less lenient with applicants that don't receive an annual check-up.
Within the realm of life insurance, there is something known as no exam life insurance. Instead of taking a medical exam when applying, the underwriter just looks at your medical records and family history. But again, we stress that this is only beneficial for those in good health.
4. Does it Cost Me Anything to Apply?
Nope! Life insurance is completely free to apply for. The company you apply with will even send you a copy of your exam results if you request them. The only thing you have to pay for is the policy itself, if you choose to purchase one.
5. Broker vs. Independent Agent: Which One Do I Go With?
When applying for coverage, it’s always a good idea to work with an independent agent over a broker at a specific life insurance company. Why is that? When you work with an independent agent, he or she has the ability to search quotes from multiple different companies, and give you the best rate options for your specific needs and health status.
When you work with a broker who works at a specific life insurance company, he or she can only give you quotes from said life insurance company, with no ability to compare to other company’s quotes. In addition, many brokers work off of commission.
This means that they will say whatever they deem necessary to convince you to purchase a policy. Independent agents generally don’t work off of commission, and will give you their honest advice when it comes to choosing a policy.
6. Is Life Insurance Tax-Free?
Yes and no. Generally, the death benefit will not be taxed once you pass away unless your proceeds become part of your estate, and that estate exceeds $12.06 million (as of 2022).
In addition, if you purchased a permanent life insurance policy that included a cash value, and you withdrew from that cash value, any outstanding loans are subject to taxation if you surrender the policy or the policy lapses.
7. Can the Insurance Company Change My Rate if My Health Changes During the Term Period?
No, they can’t. That’s why it’s always recommended to purchase a policy while you’re young and healthy, so you can lock in those lower rates for the duration of your term.
If your policy expires and you re-apply, however, the company can change the rates depending on your current health. If you’re looking for long-term coverage, we recommend either going with a permanent policy, or a term policy that offers a conversion option.
8. What Term Length Would Best Fit My Situation?
Piggybacking off of the last question, this is another question we receive a lot. The answer is, it all depends on what you’re purchasing a life insurance policy for.
A term life insurance policy is best for financial obligations such as:
- Student loans
- A mortgage
- Income replacement
- A wedding
- Paying off credit cards or other debt
- Providing financial independence
As we mentioned earlier, a permanent policy could protect your loved ones from paying estate taxes after you pass away, and prevent them from having to sell any assets to ensure they have enough money for the tax bill.
9. How Long Do I Have to Wait Before I’m Covered?
This all depends on the type of life insurance policy you’re getting. If you apply for a traditional term or permanent policy, it can take between six and eight weeks to get approved and issued a policy.
If you apply for a no exam life insurance policy, however, the approval process can be much quicker - often it can be approved in under a week depending on the company you apply with.
One thing that is important to note is the waiting period that comes along with a Guaranteed Issue life insurance policy. If you apply for one of these policies, there is a two-year waiting period before full coverage.
This means that if you pass away within those two years after obtaining your policy, your beneficiaries will only receive back the premiums you paid each month (plus interest). After the two years have passed, your beneficiaries will receive the full death benefit.
10. What Happens at the End of the Term?
Great question! When you reach the end of your term life insurance policy, you have the option to either let it expire, or continue the policy on a year-to-year basis until age 95. It’s important to note, however, that the premiums will bemuch more expensive after the term ends.
Like we stated earlier, if you want a term life policy when you first apply, but think you may want permanent coverage later on, look for a term policy that includes a conversion option. This allows you to convert some of all of your policy into permanent coverage when you’re older - but you only have this option until age 70 or so, so keep that in mind!
Questions? We Can Help!
If you have a question we didn’t answer, or are looking to purchase a policy, we’d be more than happy to help!
JRC Insurance Group, has helped thousands of families and businesses with their life insurance needs, and we can help you too! Our agency is licensed in all 50 states and we’re independently owned and operated.
As a non-partial, no-fee brokerage, our goal is match our clients with the best life insurance options available by shopping and comparing rates from 63 highly-rated insurers. By having access to dozens of companies and their guidelines, we’re able to save our client’s time and money.
Most importantly, our services as completely free, and there is no cost to apply for coverage.Give us a call toll-free today at855-247-9555, or you can request a free quote online to compare rates and options from dozens of insurance companies in less than a minute.
Personal Finance Writer
Ashley, both a published author and content creator, explores topics related to financial planning, wealth management, and insurance. Her articles have been featured in a range of publications, including Forbes and Yahoo! Finance.