If you have finally made the decision to get life insurance and provide some security for you family after you have gone, then you may have a few questions. This is a subject that isn’t discussed in polite conversation, something that people prefer to avoid than to discuss, and as a result it’s not unusual to find middle-aged adults who have significant gaps in their knowledge where life insurance is concerned.
So, if you have questions that you need answers to regarding life insurance, read on.
Is Life Insurance Taxable?
If you receive money from a life insurance policy following the death of a loved one then you should not need to pay tax on it as it will not be included as part of your income. However, you will need to pay tax on any interest that you earn from leaving this money in a savings account.
Check with our Guide to Capital Gains Tax to learn more about this taxable income.
How Much Does Life Insurance Cost?
The amount of money that you pay will mainly depend on the following factors:
- Your Age: The younger you are, the less you will pay.
- The Policy: The more the pay out, the more you will pay.
- Your Health: If you are a smoker or have a chronic health condition you will pay more.
There are other factors involved as well, from the company you purchase your policy from, to your gender, as women live longer on average and tend to pay less as a result.
At the lower end, for young, non-smokers, you can expect to pay around $25 to $30 a month for a substantial policy. At the higher end, for older people who smoke, it can be as high as $2,000 a month.
How Much Does Smoking Come into it?
Smoking is an expensive habit in more ways than one, because you could be paying three times as much as a non-smoker if you take out a life insurance policy. This is true even for younger men and women, so it’s well worth trying to stop smoking if you want to save yourself some money.
On the flip side (and forgive us for being grim) a smoker has a greater chance of cashing in their life insurance policy early.
When is the Best Time to Buy Life Insurance?
The younger you are, the better, because younger people will pay considerably less and can access high policy amounts with very small monthly payments.
That’s not to say that you should get a policy when you’re still a teenager, but that you should consider one as soon as you settle down and start a family, even if you are still in your early twenties when that happens.
As soon as you have dependents, it becomes a necessity, because while you may live for another 50, 60 or even 90 years, you could also be the victim of a horrible accident tomorrow. If that happens and you have a life insurance policy you will be able to leave a legacy of financial security to your spouse and your children.
What do Life Insurance Companies Test for?
Life insurers will test for a number of things to determine how healthy, fit and at-risk you are. These include:
- Sexually transmitted diseases
- Cholesterol levels
- Indicators of diabetes
- Indicators of kidney disease
They will take blood and urine to run these tests. To avoid any issues you should avoid smoking, drinking or taking drugs in the days (and preferably weeks) leading up to your test. You should also avoid the following to make sure there are no false positives:
- Eating poppy seeds (can produce a false positive for opiates)
- Taking pain killers that contain codeine (including OTC painkillers)
- Drinking tonic water (can produce a false positive for cocaine)
- Taking cold remedies (can produce a false positive for amphetamines)
If something comes up and you believe you have been incorrectly judged, don’t let it stand. It may result in you paying more money every month, and even if the extra amount is only $5 or $10, that’s $60 to $120 a year, or as much as $2,400 over the course of 20 years.
Ask to see your test results, dispute anything you believe to be wrong and prove these errors to them either by taking another test in the future or by showing them a doctor’s report.
Does Life Insurance Cover Suicide?
In all cases, a policy will not pay out if the policyholder commits suicide shortly after they take out the policy. The exact length of time changes, but in most cases it is two years.
After this period of time ends then they should pay out, but it will depend on the policy.
What Doesn’t Life Insurance Cover?
There are a number of reasons why a life insurance policy might not pay out, but it will all depend on the individual policy.
In many cases, life issuance will not pay out if the policyholder:
- Lied about their smoking habits or a chronic illness
- Did not disclose dangerous activities (such as regular skydiving or rock climbing activities)
- Died committing a crime
- Died while traveling to a war zone
No two policies are the same and it’s important that you read yours to make sure there are no get-out clauses that will leave you family broke in the event of your demise. You should also be upfront with the life insurance company at all times because while a white lie or two may save you a few dollars, it could cost your loved ones dearly when you die.
Is Life Insurance a Good Investment?
It’s one of the best investments you can make. Of course, you will never get to reap the benefits, but you family will and it will be given to them in a time of need.
Can I Get Life Insurance on my Parents?
It is possible to get life insurance for your mother or father, but only if you can display something known as “insurable interest”. This basically means that you would stand to suffer some serious financial hardship in the event of their demise.
How Long Does it Take to Get Life Insurance Money?
A claim should be processed within 2 weeks and it should not take more than 8 weeks. However, if there are discrepancies involved with the paperwork or delays in getting the paperwork organized then it may prolong the process.
What are the Different Types of Life Insurance?
There are several different types of life insurance, and that’s an extensive topic for another day. Take a look at our guide to Whole vs Term Life Insurance to learn more about these two varieties and more.