Accelerated death benefits is a rider which is attached to your life insurance policy.  Under the terms of the accelerated death benefits, your beneficiary will be entitled to all or part of your benefits if you become terminally ill.  These benefits figure became available in the late 1980s with the AIDs epidemic but have now expanded to include many other terminal illnesses, such as late-stage cancers.  Your beneficiary may also be entitled to accelerated death benefits should you become confined to a nursing home or will die without intensive care.

As expected, there are some strict clauses in the accelerated death benefits, such as the diagnosis, the length of prognosis, and whether the illness is incapacitating.  There is no standard form for accelerated death benefits and only about 200 insurance companies currently offer the coverage.  In some cases, the life insurance company may offer the benefits with their standard coverage but most will make you pay an additional premium for the rider.

Before you choose a life insurance policy with accelerate death benefits, consider whether it will affect your Medicaid benefits.  The accelerated death payouts could be considered as income and thus change whether you are eligible for Medicaid.  The accelerated death life insurance benefits could also be taxable and create difficulties for your beneficiary.

If you are worried about providing for your loved ones or paying expenses in event of a serious medical problem, you should be aware that there are also other life insurance options available to you which can be paid out before death.  With critical illness life insurance, you get paid a lump, tax-free sum in the event that you develop a critical illness.  Each insurance company defines critical illness differently but the major, debilitating illnesses are usually covered, like cancers and strokes.

Critical illness coverage is a separate life insurance policy whereas accelerated death benefits are a rider in your main life insurance policy.  Critical illness coverage also gets paid out in full whereas usually no more than 80% of the accelerated death benefits will be paid out.  Critical illness life insurance is also more likely to cover a wider range of medical problems, not just the conditions which are terminal or leave you completely debilitated.  However, critical illness insurance will cost more than the accelerated death benefits rider.

Just because your life insurance company doesn’t directly offer accelerated death benefits, don’t refrain from asking about them.  You may be surprised at how little is can cost to add the rider to your life insurance policy and give yourself a piece of mind should you become terminally ill.

When you get an adverse action letter in the mail, there will be a toll free number at the bottom of the letter which you can call to get a free copy of your credit report.  Just getting this report is a long process and entails you sending personal information through the mail.  You may want to skip this process all together because you will just end up with your credit score, NOT your insurance score.  According to the insider experts, your credit report actually influences your insurance score.

The life insurance companies will be factoring in the amount of debt you have, your history of payments, how long you have had credit, the amount of credit which is in revolving loans, and many other financial factors which seemingly have nothing to do with your likelihood of dying.

Here is the logic behind this strange link between your credit and insurance score: the insurers assume that you are more likely to file an insurance claim if you have a large amount of debt or regularly take out debt. There are apparently studies which back up this logic.

Credit history certainly isn’t the only factor which is going to influence your insurance score.  All of those health aspects are also going to have a major influence on your insurance score as will some other factors, like whether you have any speeding tickets. There are so many factors to consider for the insurance score, and they are each weighed differently with insurers, that it is impossible to get a clear idea of how you stand.

Before you get too caught up in the idea of a perfect insurance score, you should realize that only about 1% of applicants are eligible for the best life insurance rates.  The life insurance companies are always going to quote you a low premium to draw you in.  Then, they will later give you the higher premium based on the insurance score and some new illusive information they found out.

The reality is that you probably can’t do much to change your life insurance score.  By the time you get your credit history in order and get your health is shape, you will have gotten a few years older and the premiums will again rise for you.  Just take comfort in the fact that not many people are perfect in the eyes of life insurers and expect the premium to be higher than what was quoted.

Parts of a Life Insurance Contract

Your life insurance contract will include:

• A cover page with the name of the insurance company, the life insurance plan offered, and also states that you have 21 days to opt out of the policy in the event of dissatisfaction.  The cover page will be signed by an agent at the insurance company.
• A complete list of benefits and specificities including how much benefits, the premium costs and class, premium number, and insured’s name.
• A table which shows estimates of future values of the life insurance (such as with universal life insurance policies)
• A glossary of terms
• An outline of your rights as the policyholder, such as converting the policy, changing the beneficiaries, receiving the money value of the policy, or borrowing against the policy
• An outline of how beneficiaries can make claims
• Any rider or endorsement to the policy
• All provisions of the policy

Policy Provisions

Even though there aren’t any standard forms for life insurance policies, there are some provisions which are required by state law.  Even in the states which do not require these provisions, the life insurance companies will usually still include them.  They may include:

• Entire Contract: This provision delineates that the entire policy and application must be appended together.  This is to protect the insured person in case the insurance company attempts to claim that you misrepresented yourself during the application process.
• Incontestability: This provision of the life insurance policy states that the policy cannot be questioned once it has been in place for two years.  Even if you made a mistake on the application or the insurance company finds out that you misrepresented yourself, your beneficiaries will still be entitled to the policy benefits.
• Misstatement of Age: This provision is an exemption to the aforementioned incontestability.  An insurance company does not have to pay out your policy if you misstated your age, regardless of the time which has passed since the policy went into action.
• Reinstatement: Reinstatement has to do with whether or not you will have the right to activate your policy again if it has lapsed, such as from nonpayment. This provision will outline the specific details of reinstatement, if available.
• Suicide: Virtually all life insurance policies have a provision for death by suicide. In most cases, the policy will not be paid out if the insured dies through suicide within 2 years of taking out the policy, though the company will be responsible for paying out all premium costs paid thus far.

Incontestability

In every single life insurance policy, there will be a section for the incontestability clause.  This clause designates a duration of time (typically 2 years) in which the policy can be voided or premiums raised if the insurance company thinks that you lied or did not give out all information while applying.

Because of the incontestability clause, it is incredibly important that you do not lie or hide information on your application.  For example, let’s say that you are a smoker but stop smoking long enough before the medical exam so the insurance company doesn’t find out about your habit.  Then, a year later you get lung cancer and die.  When the medical examiner report shows years worth of smoke damage in your lungs, the insurance company will know that you lied and can void your policy.

Note that misstating something on your life insurance policy is not the same as outright lying.  Lying on your application can be considered insurance fraud and you can be held legally accountable for it.

Exclusions

Even though life insurance policies don’t have as many exclusions as before, there are still numerous reasons why they won’t pay out the policy of the insured person.  The #1 life insurance policy exclusion is suicide.  Some life insurance policies will still pay out in the event of suicide but only under certain circumstances, such as the suicide cannot take place within 2 years of the policy being taken out.

The next most common exclusion is “acts of war.”  An act of war doesn’t have to be as a combatant in a war or even as a casualty.  Acts of war can be part of undeclared wars as well.  Most people taking out life insurance policies before 2001 didn’t consider the chance of war, but the aftermath of September 11^th changed that, especially when people heard about how some insurance companies refused to pay many policies.

If you die while engaging in a hazardous activity, then the insurance company may also have the right not to pay out on your policy.  Insurance policies will each define “hazardous” differently but there are some basic activities while will be excluded by virtually all policies, like skydiving or mountain climbing.

Keep in mind that insurance policies do not have a standard form like property insurance or many other types of insurance.  You will really have to read into the fine print to make sure you know when you are covered and what events will exclude your coverage.  This can make a big difference when you are deciding whether or not to go on that skydiving trip or think about lying about your social smoking habit.

Term

Term life insurance is the most popular type of life insurance because it lets policyholders buy large coverage for the lowest premium (compared to other types of life insurance).  The policy is only valid for a certain term and the policyholder pays a fixed rate during this term.

Whole Life

Whole life insurance covers you until the moment of your death and the rates will not change during the entire time.  The life insurance companies will use your premiums for investments and may offer a guaranteed return on the investment.

Universal Life

Universal life insurance will keep you covered so long as you continue to pay the premiums. There is also an investment aspect of universal life insurance.  The beneficiaries of the policy will receive the value of the policy and may also receive the value from the investments.  With universal life insurance, the value of the policy can change depending on how the investments are valued.

Variable Life

Variable Life insurance is like universal life insurance but policyholders have more options when it comes to investments.

Blended Life

This type of life insurance policy is a combination of term and whole life coverage.  Any dividends which the policyholder pays will go towards turning the term life insurance into whole life.

Term Universal

Term universal is a fairly new type of life insurance which combines term and universal life.  There are more choices and flexibility with term universal, especially in that you can lengthen the duration of the term even once you are in the policy.

Business Life Insurance

Business life insurance protects a company, not an individual.  The “death” of the company can occur when a crucial member of the business dies or becomes ill, when a disaster occurs that harms the business, or so forth.

Critical Illness Insurance

Critical illness insurance is becoming more popular recently.  It gives a lump sum amount in the event that the policyholder is diagnosed with a critical disease, such as cancer. The money can be used for various purposes, such as paying medical expenses or compensating for lost wages.

The first thing you must consider when determining how much life insurance you need is how you want your family to live after you are gone.  Would you like to leave your family suddenly rich?  Do you want your family to continue on exactly as they were before your death?  Would your family be alright even if you didn’t have any life insurance?

For most people, life insurance is about providing security for families after you are gone – not turning family members into overnight millionaires with your death.  If this is the case, then your life insurance must be able to at least cover the costs these four areas:

• Funeral Expenses: depending on the type of funeral you or your family would like, costs can range from a few thousand to over $20,000.  If you haven’t yet talked about funeral plans with  your loved ones, then it is time to do so before shopping for life insurance.
• Debts: You must calculate all of your debts in order to figure out how much life insurance you need. By covering the debt amount, even in the case of low-interest mortgage rates, you can insure your family will not be forced to sell property or move.
• Education for children: If you are planning on sending your children to college, then the expenses can be great.  You can insure that your children will get the opportunity to study by calculating the college costs into your life insurance policy.  Since the proceeds of life insurance are rising on about the same rate as college tuition costs, you don’t have to change the figures to account for inflation.
• Income replacement: When figuring out how much life insurance you need, you do not have to directly calculate your income.  That is because you have already calculated for debts and expenses.  Instead, calculate half of the amount you make before taxes.  Then, divide this amount by 5% (the amount that life insurance benefits are likely to earn).

After you have calculated these basic figures for how much life insurance you need, you should adjust the figures to reflect your personal needs and desires.  If you don’t have any retirement plan, then you will likely want to increase the life insurance policy.  If you have a disabled child who will need care when you are gone, then you would also want to increase the amount.  If your spouse has a large salary, then you could reduce the life insurance figures accordingly.

Don’t worry when these figures end up in the millions.  When you purchase term life insurance policies, there is not much of a price difference between figures like $1 million and $1.5 million.

According to the American Association for Critical Illness Insurance, only about 600 thousand people in the country have this coverage.  The main problem is that most people simply don’t realize that they can be covered in the event that they are diagnosed with a critical disease.  In the scheme of life insurance policies, critical illness coverage is relatively new.  The first such policy wasn’t sold until 1996.

As medical technology makes leaping strides forward, it makes much more sense for young to middle-aged people to invest in critical life insurance. Diseases which in the past were nearly always terminal – such as breast cancer – are now widely curable.  Instead of the patient dying and the beneficiaries receiving the life insurance payout, the patient lives but the entire family is likely to be broke from the ordeal.

Going completely broke due to medical expenses is unfortunately very common.  More than half of people who declared bankruptcy in the United States did so because of medical expenses – despite the fact that more than ¾ had health care insurance.  Every year, about 1.4 million people are diagnosed with cancer.  There is about a 63-66% chance that they will survive, but virtually all will have exhausted a significant (if not all) of their financial resources battling the disease.

Critical illness insurance covers all of the medical expenses which your health insurance does not cover, including the copay, deductible, alternative treatment costs, accommodation, and transportation. With critical illness insurance, you don’t have to worry about tallying the expenses because the amount gets paid in one bulk sum when you receive your diagnosis.  Some critical illness insurance policies will even pay you again (though a smaller amount) if you get another critical diagnosis in the future. Considering that most people diagnosed with critical illness will have to take substantial time off work and lose out on their income, the critical illness insurance can take the financial stress away from being sick.  All critical illness payouts are tax free.

As with all life insurance, make sure that you are reading the fine print on the critical illness insurance policy carefully.  Make sure you know what you will be covered for and for how long.  In some cases, life insurance policies may even have riders for critical illness coverage.

When trying to determine how much critical illness insurance you need, you should first consider your monthly expenses, like your mortgage payment.  Then, multiply this amount by 24 (2 years).  Then, add another $5-10 thousand for medical costs.  This total should then cover all expenses during the period you cannot work and also costs not paid by your health insurer.

Term life insurance is much cheaper than the other types of life insurance, but it is very limited in that it only offers coverage for a  set time period, usually 10-30 years.  Even if your term has not yet run up, you can still usually covert the policy into a life insurance plan which covers you until death.

The main benefit of converting your term life insurance policy into whole life or universal life insurance is that you will not have to go through any examination process.  If you were healthy when you bought the term life policy, you will get a policy based on being healthy – even if you have had serious health complications since then.  Converting from term life insurance is as easy as signing your name on a check.

Another thing that many life insurance policyholders don’t realize is that they don’t have to convert their entire term life policy at once.  If you are only financially able to convert a small amount at a certain time, you can opt just for that amount.  This allows you the freedom to grow your investment as your assets become available.

For those who don’t convert their term life insurance policies to permanent ones, the premium price is going to jump to keep the policy open.  Buying another policy after your term life insurance has lapsed can be difficult if your health has gone downhill. That is why it is so important for you to consider the long-term picture when you purchase term life insurance.

If you are just now looking into term life insurance, it is important to consider whether you will benefit from converting it to whole or universal life insurance later.  If so, then you must make sure that the policy is convertible. Almost all term life insurance policies can be converted but don’t assume it.  Also, see what the deadline is for conversion.  Even though you will still be given the same health status as when you bought the term life insurance policy, the insurance companies will consider the fact you are aging.  The longer you wait to convert the policy, the more expensive it is going to cost.

Most people look at term life insurance as short-term, cheap solutions for providing that security you need.  But don’t just opt for the cheapest life insurance policy you find.  You will want to make sure you are getting a high quality policy and that the quality parts of the policy can be converted to whole or universal life insurance in the future.

Heart disease is a leading cause of death in the western world.  There are many factors which put you at risk of having heart disease, including:

• High blood pressure
• High cholesterol and/or triglyceride levels
• Obesity
• Smoking

Even if you have high blood pressure or cholesterol, don’t panic that your life insurance premiums are going to be outrageous.  Many life insurance companies will still give you the preferred rate so long as you only have one or two risk factors AND also can show you are making efforts to keep them under control.

What is Considered Unhealthy?

In general, a healthy cholesterol level is considered to be no more than 200, with LDL cholesterol levels no more than 100.  As for blood pressure levels, healthy is generally considered no more than 140/90.  Keep in mind that these standards change throughout your life and are also based on your gender.  For example, a man and woman may have the same cholesterol levels but only one considered to be at unhealthy levels.

The insurance companies are not using the same standards to diagnose health as medical doctors.  You don’t have to have diagnosed hypertension for the insurance company to consider you at risk for heart disease.  However, you are probably not going to be charged higher premiums unless you have a diagnosis.  If you have gotten a diagnosis of high blood pressure or cholesterol, then it is very important that you follow all of your doctor’s instructions about taking medications and getting follow-up care.  In most cases, life insurance companies will not charge higher premiums if you take steps to keep the condition under control.

Always Tell the Truth

If you already have been diagnosed with heart disease risk factors like high blood pressure or high cholesterol, you must tell your life insurance company about this when applying.  Lying about these conditions could put your policy in jeopardy.  Plus, the life insurers are likely to find out anyway during your required medical exam.  Some life insurance companies even look favorably on people who are already taking medications for their conditions.  They realize that people actively taking measures to keep themselves healthy are less likely to develop heart disease than those who aren’t.  After you disclose your health status, you life insurance premium may be higher than what you were initially quoted but you should still be given a standard premium.

Even if you just light up occasionally, you may still be considered a smoker by the life insurance company.  Expect questions like “Have you smoked a tobacco cigarette anytime in the past year?”  You may get separate questions for cigar and chewing tobacco use.  Make sure you explain exactly how frequently you use these products.  There is a big difference between smoking only on your birthday and smoking a pack a day!  Unfortunately for occasional smokers though (like those who light up just while out on the town), they may be considered smokers of the same level (and life insurance rates) as the people who smoke several packs per day.

If you just smoke one cigarette a year, you can generally get away with calling yourself a nonsmoker on the application form.  But be cautious before you lie to the life insurance company! Most life insurance companies which offer good rates will require that you go get a medical examination before they issue the policy.  You will likely have your blood taken and checked for nicotine.  It usually takes about 3 full days until nicotine leaves your body – but there will likely still be trace amounts for much longer.

Still want to lie on your life insurance application about your smoking habits?  Before you do, consider this: if the medical test shows that you are a smoker, you could have your rates increased or your life insurance policy may be completely denied. You could even be criminally charged with insurance fraud!  Even if you don’t get caught, your lie may be found out after your death. If your death is related to smoking or they find out you were a smoker afterwards, they can contest the policy and refuse to pay out your beneficiaries.  Since there is a lot of money on the line, you can expect the life insurance inspectors to do their job well and find out whether you lied or not.

If you become a smoker after you get your life insurance policy, then you don’t have to report it to the company.  Your benefits will not be compromised so long as you truly were not a smoker when you filled out the application.  However, the life insurance company may still choose to contest the policy until they investigate.  This can make a lot of difficulties for your beneficiaries when they make their claim.