how does life insurance work?- 3 things you didn't knowYou may be familiar with how Auto Insurance and Home Insurance works, but what about life insurance? How does life insurance work? Here are three things you probably didn’t know:

1.What Determines Life Insurance Cost

You can get a quote for life insurance by using an online quote engine or by speaking with an insurance agent. However, quotes are just estimates, only an insurance company can make you an offer and give you a firm price.

However, your actual price will be determined only after you:

  • Apply for the insurance.
  • Answer questions about heath history, family health history, lifestyle and more.
  • Take an insurance company medical exam and blood tests.

It doesn’t matter what the agent tells you, your cost for insurance is based on how the information on your application is evaluated by the life insurance company underwriter. Underwriters follow company underwriting policies to determine your rating, which determines the price you pay for that insurance.

Two different agents can take the same information from you and come up with different quotes. Why? The accuracy of the quote depends on how much information they have gathered and also on the insurance company(s) they are using. That’s one way using an independent life insurance agent can help you save money. An independent agent can steer you to a carrier which is most likely to have underwriting policies which look favorably on your situation.

Once your application and exam have gone to the insurance company underwriter for review, they will either make a decision right then, or detemine they need more information.  This can mean:

  • Ordering your medical records.
  • Having you complete a questionnaire.
  • Interviewing you.

When the underwriter has all of the information that they need, then and only then will a decision be made to approve, postpone or decline your application.  If you have a complex case, an independent agent can be helpful by:

  • Making sure all requirements are received in a timely manner.
  • Presenting your information in the most favorable light.
  • Having their independent underwriter (if they have one) discuss your case with the insurance company underwriter to see what can be done to improve your rating (and therefore your premium).

2. Keeping Your Beneficiaries Information Up to Date is Your Responsibility

Often, life insurance is something we spend a lot of time thinking about when we get it, but ignore afterwards. You need to know that keeping information on your beneficiaries up-to-date is your responsibility, not the company’s.

A life insurance company won’t hunt for your beneficiaries. Make sure you keep their contact information current, or make sure your beneficiaries have your policy information. That will ensure that the life insurance you’ve paid for gets paid out in a death benefit to your love ones.

3. Advantages of a Guaranteed Death Benefit with Guaranteed Premium

Life insurance which has a guaranteed death benefit and a guaranteed premium is a one-sided contract. What does that mean?

  • As long as you pay your premium on time, the company can’t cancel your policy or change it, only you can.
  • What can you change? Any time you want, you can change the payment mode (monthly, quarterly, semi-annually or annually), and the beneficiaries.
  • Usually, once during the life of the policy you can also lower the face amount and/or the term amount.

Why is that an advantage? As long as you pay your premium, you can be sure you have life insurance to leave your beneficiaries, but you also have some flexibility if your needs change in the future.

The Bottom Line

It’s not always easy to understand how life insurance works. Moreover, it is not always easy to determine what sort of policy and death benefit amount will work best for you. Your best help in choosing a life insurance policy and carrier is an independent life insurance agent. An experienced independent life insurance agent will ask enough questions to determine the best carrier and policy for meeting the needs of you and your family at the most affordable price.

Photo Credit: Hubert Figuiere