Life Insurance is one of the most under-valued insurances amongst all insurance types. But yet it’s the most important. Tomorrow is not promised to any of us. If you have children, it’s highly recommended to take out a life insurance policy to make sure your family doesn’t have to endure harsh financial consequences in case of your early passing. Getting a life insurance policy could be the best decision you’ll ever make for your family.
Life insurance can get pretty complicated and for that reason alone, here is a Life insurance Q&A to help answer some of the most common questions about this amazing insurance.
Q1: My neighbor lady who I help with her groceries is getting old. She really likes me, can I take out a Life Insurance policy on her?
A1: The short answer is no. Back when life insurance first came on the scene hundreds of years ago, people would sometimes murder people after they learned that a person had a life insurance policy. The criminal would then collect the cash on the death of the insured. Life insurance companies quickly figured out that they needed to change this. Thus, a term called “insurable interest” was born. Insurable interest states that the person taking out the life insurance policy MUST have an insurable interest in you. For example, that person is someone like your mother, father, sister, brother, child, or even a key person to your business corporation. That one is called “key person insurance” but it boils down to being just life insurance still. The core part to insurable interest is you must be at risk of financial loss if that particular person were to pass away.
Q2: Can anyone other than a relative be my beneficiary?
A2: Yes. You can inform the insurance company you’d like anyone to be your beneficiary and that he or she is considered a legally competent person of your choosing. You can even make your church or your favorite charity your beneficiary.
Q3: I’m a smoker, can the Life Insurance company really find out?
A3: Yes they can. When you get life insurance, they usually have a nurse come to your home to draw blood. They will do a tobacco test to determine whether you are indeed a smoker or not. Plus, if the insurance company figures out you’re a smoker when investigating a claim after your passing, they reserve the right to deny the claim based on the fact they were misled. Your family and children would be left with nothing and not receive the cash benefit you planned for them. It’s a bad idea to lie about this as your family could be the ones who have to endure the hardship afterwards.
Q4: What’s the difference between a Joint Life Annuity and a Single Life Annuity?
A4: An Annuity is a life insurance product that can be used for retirement. A person makes a large lump sum payment to the insurance company. In return, the insurance company agrees to pay you that same sum of money, albeit in monthly payment to a time in the future you select. You can even choose to receive the payments for life.
With a Joint-Life Annuity, it gives you assurance that when you pass away, your spouse will continue to receive payments with no hiccups.
With the Single-Life Annuity, when you die, the payments stop.
Q5: Do single people really need life insurance?
A5: If you are a single person with no dependents, getting life insurance for yourself isn’t dire. But you shouldn’t immediately write off getting life insurance.