John Buenger is familiar with this scenario all too often when he runs his independent insurance agency. A TV ad for life insurance may appear, but people are surprised when the policy doesn’t match their expectations. Buenger is a senior financial adviser and manager at Rice Agency in Hagerstown.
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Life insurance looks simple on the surface. All products have the same basic structure: you pay the insurer premiums and, if your death occurs, the insurer pays your heirs the death benefit. There are many types of life insurance. It is not always easy to see the differences between them in a 30-second spot. Many key information is often left out of TV commercials. This is a better way of learning about these products, so the next time you see a life insurance ad, you will be able to tell if it’s too good to true.
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- Learn the Basic Types
Based on the type you choose, there are differences in how much coverage, costs, features and restrictions.
Guaranteed issue Kelly Maxwell, the owner of Seniors Mutual, a Texas insurance brokerage, said that guaranteed-issue life insurance policies are the most popular TV ads. These policies do not require a medical exam or underwriting and anyone can apply for them. Maxwell states that insurance companies can set up policies in as little as five minutes and provide coverage for life.
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There are many cheaper options for those who are healthy enough and are willing to undergo a medical examination. Even applicants with mild health issues, such as high cholesterol, might be eligible for a lower rate after undergoing a medical exam. Buenger recently ran the numbers for a healthy 70 year-old man with $10,000 of life insurance to pay funeral costs. A policy that required a medical exam cost $67 per month. However, a guaranteed-issue policy costs $99 per month. This is nearly half the price. Because guaranteed-issue policies can only provide limited coverage, typically up to $25,000 per month, they are often used for funeral expenses. Policies with a medical examination could offer six to seven figures of coverage.
Accidental death. These products do not pay out for health conditions like cancer or heart disease. Maxwell says that these policies rarely pay out and the definitions of accidents get smaller every year. “People buy these products just because they look cheap, and they are. But customers don’t know the restrictions on their coverage.”
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- Shop around and be a Skeptic
Television ads for life insurance often present unrealistic scenarios and use the most rosy of scenarios. Buenger estimates that about 5% of applicants might fit this profile. He says that if you aren’t in the best of health, a $19.99 policy could cost you $50 per month or more.
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You should treat the ads if you are looking for life insurance with a healthy dose skepticism. Don’t call the hotline on the ad. The representative will only want to sell you the advertised product. If you’re not in good health, it is a good idea to shop around. Companies have different medical ratings which could affect pricing. One insurer might charge less for patients who have had cancer in the past than another.