Kiplinger Personal Finance: Don’t Fall for That Life Insurance Ad on TV | business news

It’s a scenario John Buenger encounters all too often at his independent insurance agency.

People see a life insurance ad on television, but when they ask for more details, the policy is not what they expected.

“The fine print in these ads goes by so fast that when people call for more information, the conditions are totally different than what they had in mind,” says Buenger, of the Rice Agency in Hagerstown, Maryland.

On the surface, life insurance seems pretty simple in that all products follow the same general setup: you pay the insurer’s premiums, and if you die, the insurer pays your heirs a death benefit. But there are different types of life insurance, and how the products differ isn’t always clear in a 30-second commercial.

The most common TV ads are for guaranteed issue life insurance policies, says Kelly Maxwell, owner of Seniors Mutual insurance brokerage in Pflugerville, Texas. Because these policies have no medical exam or health underwriting, anyone can easily qualify for them. “Insurers can set up a policy in five minutes over the phone,” Maxwell says, with lifetime coverage.

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If you are in reasonable health and willing to undergo a medical exam, there are cheaper options. In fact, even applicants with moderate health conditions, such as high cholesterol, may qualify for a lower price after undergoing a health screening.

Guaranteed issue policies are often used to cover funeral costs because the amount of coverage you can buy is limited, usually up to a maximum of $25,000, while policies with a medical exam could insure you for six or even seven figures. .

There are other drawbacks. Guaranteed issue policies do not pay a death benefit for the first few years. For example, a policy may state that if you die for any reason within three years of purchase, your heirs will only receive premiums plus interest, not the stated death benefit.

“Insurance salespeople tend to overlook these drawbacks,” says Rafael Rubio, president of Stable Retirement Planners in Southfield, Michigan. I would receive a better offer by applying with a medical exam.”

Life insurance that requires a health exam generally falls into one of two categories: term or permanent. The term is term life insurance.

It lasts from one to 40 years, depending on the term, with the quoted rate guaranteed only for the duration of that term. If you survive the term, coverage ends. Depending on the contract, you may be able to renew it, but the premiums will cost more because you will reapply at an older age, when you may also have more health problems.

However, permanent life insurance does not expire as long as you continue to pay premiums. The other side of the coin is that because these policies are more likely to pay a death benefit, they initially charge more than a term life policy, roughly five to 15 times as much initially. As a result, only smaller amounts of coverage may be affordable.

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