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Sarah Martin asked:

1. How does a life insurance company decide how much a particular policy costs?

The price of a life insurance policy is a life insurance company’s calculation of the amount of cash necessary to gather from each member of the life insurance pool. The price is always dependent on the mortality tables and the calculation of the size of the risk the life insurance company is taking on by being the insurer of your life insurance policy.

2. How does a life insurance company assess their risk in insuring an individual?

When somebody applies for a life insurance policy, the company will inquire about their health status and often require a medical exam. The life insurance company will use information gathered to determine if and how they want to insure the individual.

This determination of “if” and “how” is referred to as “underwriting.” There are not many limits on the type of information underwriters can take into consideration.

3. Do all life insurance companies require a medical examination?

Often companies will require a physical medical examination prior to agreeing to insure an individual. Generally, they have a company doctor that will conduct this examination. This doctor or medical technician may have their own office or may even come to the potential insured party’s home for their convenience. The insurance company should not charge the potential insured party for this exam.

4. What types of questions will the life insurance company ask when applying for a policy?

It is common for life insurance applications to ask the following questions:

Do you regularly use tobacco or tobacco products? Life insurance companies strongly believe that smoking or using tobacco products in any form can make an individual’s life shorter and will charge higher premiums for smokers.

Do you have AIDS, cancer, heart disease, or are you HIV+? Depending on the severity of any health conditions such as these, a life insurance company may sell you a policy at the normal rate or possibly charge you a more expensive price. If the health problem is extremely severe, most life insurance companies will directly reject your application.

Do you have a hazardous career? With more dangerous jobs, companies tend to charge a more expensive price for a life insurance policy. If your job requires an above average amount of risky, life threatening behavior, expect a higher cost for life insurance.

Does your immediate family have a history of fatal diseases or death at a young age not due to an accident? The life insurance company is not barred from questioning you about you and your family’s health history. Diseases that commonly run in the family that are fatal, such as heart disease, Sickle Cell Anemia, or cancer may cause a company to reject your application or charge you a higher rate.

5. What other questions can I expect to be asked?

A life insurance application may ask seemingly unrelated health questions to ***** high risk behavior.

Some of these questions may include the following:

In the past seven to ten years have you ever been arrested for driving under the influence? Diagnosed or medically treated for cancer, AIDS, HIV, chronic lung disorder, heart disease, diabetes, stroke, or liver problems? Recommended by a medical professional to cease or reduce drinking alcohol?

Are you currently or have you ever been disabled or forced to retire due to an illness or injury?

Answering “yes” to any one of these inquiries may result in getting a life insurance application denied, it is far better than answering dishonestly and then having a claim refused later down the line. This outcome could result in your beneficiaries getting nothing if you should die.

6. Can life insurance companies use genetic testing to determine whether or not they want to insure someone?

Life insurance companies often use genetic testing to learn as much as possible about their potential clients. By administering a blood test, companies can determine not only what diseases you may currently have, but ones you may get in the future as well. Some states do not permit this kind of testing for health insurance purposes, but generally for life insurance, genetic testing is permitted.

Donald Lusan asked:

What is term insurance? This is one of the questions I get from time to time. People want to know how it works. What are the advantages to owning a term policy? What are the disadvantages?

Term insurance is simply a policy designed to take care of a specific need, or a number of needs, for a predetermined period of time. What are some of the needs that a term policy would fit into? Let us take a look at a few of them.

Young Married Couple

You are recently married and still in your twenties. You have big plans for your spouse and yourself. You both recently graduated college and you plan to buy a home in the near future. You are not in a hurry to have children but you and your spouse plan to expand the family in the future.

Your first consideration is to protect your spouse in case of your premature death. You want a policy that would guarantee that a good portion, if not all, of your income continues.

When you buy a home you certainly don’t want your other half to lose it if you died. A mortgage term life insurance policy would certainly take care of that,

As you know you will have children you may as well get some term insurance now. A 25 year or 30 year term policy will probably be best. That should cover your loved ones up to and through the college years.

The great advantage is that term life insurance is cheap insurance in any form. It is even cheaper for young people. The older you are the more it costs buy once you have it the premiums usually remain level.

Middle Aged And More Mature People

You are progressing in years. The children are grown, have graduated college, and are possibly considering their own little families. It is only your spouse and yourself now. You have done fairly well with your investments. You feel that you would like to leave something extra for your life partner. A small term policy would be good to take care of final expenses. If your estate is large you may want a policy sufficient to pay the Federal Estate Taxes when they fall due.

There is one other thing to think about. You may have a grandchild that you just adore. You could buy a term policy to help with his or her college education.

Business People

Business people use term life insurance to fund buy sell agreements in case of the death of a partner or shareholder. They also use it to cover the business in case a key employee dies.

Conversion Privilege

Term life insurance is temporary insurance but it is cheap insurance. Some of them allow the owner to convert the policy to a permanent policy within a specific period of time. This helps guarantee that you will always have life insurance if you need it. You may find that as you get older you develop some medical condition that would prevent you from buying new life insurance. You wouldn’t qualify. If you have a term policy with a conversion privilege the company has to convert to any permanent policy you choose, regardless of the condition of your health.

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