10 Proven Ways to Lower Your Car Insurance

A woman wearing a yellow shirt drives a silver car.

We’ve heard the insurance tagline over and over: “Switch and save money today.” Every insurance company claims to have the best deal. But, how can you get a good deal while maintaining the appropriate amount of coverage? We’ve got you covered—literally, and with no extra cost to you. Check out these ten ways to help lower your car insurance. 

1. Get Quotes Annually 

Insurance rates are increasing every year, so your insurance premiums will naturally increase over time. However, a huge spike in your insurance bill might mean it’s time to switch providers. Every year or two, use a car insurance quote finder to compare your current insurance rate to competitors. You can also sign up for Jerry.Ai, a tool that automatically checks for the lowest insurance rates before your policy renewal. Requesting quotes annually will ensure that your rates remain low and competitive. 

2. Bundle Your Insurance Plans

Insurance companies often offer discounts when you bundle home, auto, or life insurance. Plus, you have the added convenience of paying all your insurance on one bill. If you’re satisfied with your insurance rates, you can stay with the same company to build up discount opportunities. Some insurance companies will give discounts to their long-term customers, also known as a customer loyalty discount. Bundling and customer loyalty can help you lower your overall insurance costs. 

3. Get Rid of Insurance You Don’t Need 

Older vehicles require less insurance depending on their overall value. For example, you may not need collision and comprehensive coverage on a vehicle if its value is less than your deductible combined with your insurance premium. If you have a car that’s only worth $1,000–$3,000, you might decide to get rid of some of your insurance and purchase a replacement vehicle out of pocket in the case of an accident. If you don’t drop unneeded insurance, you can end up spending more on your premiums than what the total car is worth. 

4. Increase Your Deductible 

A deductible is the amount of money you pay out of pocket as a result of an accident. An increased deductible means lower premium rates. This is a great option for individuals who can keep enough cash savings to cover their deductible in the event of any emergency. Ask your insurance agent about raising your deductible to see how your premiums will fluctuate. 

5. Drive Safely  

This one might seem kind of obvious, but driving safely is the best way to keep your insurance rates low. Insurance providers record your driving history, including any accident reports or traffic tickets. These instances accrue points that eventually lead to increased insurance rates. Even if you switch insurance providers, companies will be able to access your driving history. Try your best to avoid speeding, running red lights, and driving recklessly. Be smart, and drive smart. 

If you do get a ticket, take a defensive driving class to get the points taken off your record. A defensive driving class is an online or in-person course created by individual states to teach drivers how to anticipate dangerous situations and make educated driving decisions. In some states, taking this class can reduce your insurance by 10 percent.

The defensive driving course may seem expensive for a single ticket, but it will end up saving you money on your insurance premiums. You can usually take driving school once a year. If you keep a clean driving record for three to five years, you could save on your insurance rates. 

6. Improve Your Credit Score

Studies show that drivers with a higher credit score are more responsible behind the wheel. Drivers with higher credit scores cost the insurance company less than individuals with a low credit score. A credit score is just another way for insurance companies to measure risk—the very thing insurance companies seek to avoid. Improving your credit score can also help you qualify for auto and home loans. Study your credit report and find ways to improve your overall credit score.

Are you looking for a way to monitor your credit needs? Check out ExtraCredit by Credit.com. It has five killer features, each specifically designed to help you out—no matter what shape your credit is in. 

Sign up for ExtraCredit today!

7. Pick the Right Vehicle 

Insurance rates fluctuate based on the make and model of a car. This is something to consider when purchasing a new or used car. A car such as a Toyota or Chevy will be significantly cheaper to insure than a Porsche. That’s because it’s less risk for insurance companies. Remember, getting a cheaper insurance premium is dependent on your ability to minimize risk for the insurance company. Picking a car brand with an affordable initial price and reasonable upkeep costs can help you save money on insurance and your vehicle in general. You can also save on car insurance by selecting a smaller car with installed safety features.

8. Choose a Group Insurance Plan 

People under the same household can create a group policy to save money. The plan will be more expensive as you add individuals to your group policy, but cheaper than if everyone was on their own insurance plan. Members of the insurance plan either need to be related or have joint ownership of the car. Each of the drivers will be insured for all the cars your family owns. Younger drivers will be more expensive to insure because of their added risk. Look for additional discounts to minimize your total group rate. 

9. Ask Your Insurance Provider About Other Discounts 

Car insurance companies often have additional discounts for specific groups of people. For example, if you are a member of the military, you can get a discount at some insurance companies. You can also lower the insurance premium for your teenage driver through a good student discount. Some other car insurance discounts include the following: 

  • Government employees and retirees discount
  • Multiple vehicle discount 
  • Homeowners discount (separate from the bundling discount) 
  • Paperless billing discount 
  • Hybrid or green vehicle discount 
  • Driver education discount for people under 21
  • Automatic payments or paid-in-full discount 

Ask your insurance provider about additional discounts to see if you qualify. 

10. Find Out About Pay-as-You-Go or Usage-Based Insurance 

If you don’t use your car often, you may be able to save on your insurance. Some companies offer a discount for driving under 10,000 miles in a single year. Other companies offer a pay as you go plan that allows you to pay a base rate and then pay per mile. These discounts could save you money if you do not have a long work commute or if you rarely use your car. This may also be a good incentive to use public transportation when possible. 

Final Thoughts

We all want to save money on car insurance, but that’s not the only factor in becoming a smart insurance customer. Before diving into savings, first determine your insurance needs and goals. Do your research to find out the difference between liability and full coverage insurance. Once you have the right coverage, you can start chipping away at your rates by following these ten tips to lower your car insurance. 

The post 10 Proven Ways to Lower Your Car Insurance appeared first on Credit.com.

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What Is a Life Underwriter Training Council Fellow (LUTCF)?

Underwriters' meetingNew insurance agents can get a grounding in the basic skills, such as underwriting, needed to succeed in the field by becoming a Life Underwriter Training Council Fellow (LUTCF). After completing the required training, agents will have greater expertise in prospecting, selling, practice management as well as insight into practice specialties including life and health insurance, employee benefits and annuities. Having a LUTCF also can aid new agents in acquiring a job with an agency and in marketing themselves to prospective clients.

The LUTCF is overseen by the National Association of Insurance and Financial Advisors (NAIFA). The training and testing are provided by education company Kaplan through its College for Financial Planning division.

LUTCF Certification Requirements

The core of the certification requirements for the LUTCF is a set of three courses. Each course consists of eight weeks of instruction followed by a week for review and testing.

The first course is an introduction to life insurance and managing a life insurance practice. It covers business planning, ethics, life insurance product basics, risk management, prospecting, selling skills and financial planning.

The second course goes deeper into life insurance as well as annuities, mutual funds and insurance for health, disability, long-term care, group coverage and property and casualty. Risk management, retirement and estate planning are among the subjects covered in the third course.

The third course deals with risk management applications. It covers retirement and estate planning as well as special situations.

The courses are available as self-paced prerecorded lectures. They are also taught live and via interactive online classes. After completing each of the three courses, students must pass a two-hour test. To pass, they must correctly answer 70% of the 50 questions on each test.

The training costs $950 per course for a total of $2,850. The only prerequisite for the LUTCF is to belong to NAIFA, which has a sliding membership fee scale. People in their first year in financial services pay $10 to belong to NAIFA. The fee increases annually until it reaches $56 a year after a member has five years of experience in the field.

After receiving the designation, LUTCF designees can renew it by paying a $50 renewal fee every two years. As part of the renewal process, they also have to demonstrate that they have completed three hours of ethics continuing education every two years. In addition, LUTCF holders must agree to follow standards of professional conduct and be subject to a disciplinary process.

LUTCF Holder Jobs

Insurance worksheetsLUTCF seekers are usually insurance agents at the start of their careers. They may be interested in obtaining the designation as a way to convince potential employers of their commitment and knowledge about the life insurance industry. Having the LUTCF initials on a business card is also seen as an aid in marketing to prospects. The LUTCF is an optional certification and does not confer any specific powers or privileges on holders.

The designation has been around since 1984 and approximately 70,000 people have earned an LUTCF during that time.

Comparable Certifications

There are only a few entry-level certificates available to life insurance agents. In addition to the LUTCF, new agents can choose from:

Financial Services Certified Professional (FSCP) is offered by the American College of Financial Services, which originally co-sponsored the LUTCF with NAIFA. In 2013 the organizations ended their association and the American College of Financial Service began offering the FSCP. It requires passing seven courses on financial services and ethics topics at a combined cost of $3,230.

Registered Financial Associate (RFA) is a designation from the International Association of Registered Financial Consultants. It is offered to agents and other financial professionals who have already received a life insurance license, Series 65 securities license, bachelor degree in a related field or any of a number of professional designations, including a LUTCF. RFAs also have to pay a $250 fee. The only requirement other than that is to pass an examination on the organization’s code of ethics for financial professionals.

Bottom Line

Business meeting

The Life Underwriter Training Council Fellow (LUTCF) certification is one of the first designations sought by beginning life insurance agents. To get one, students have to learn about life and other forms of insurance, mutual funds, annuities, employee benefits and financial advising, in addition to managing a life insurance business, prospecting and selling.

Tips on Insurance

  • A consumer considering purchasing life insurance can increase the chances of making a good decision by having a relationship with a trusted and experienced financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Entry-level designations for financial services professionals like the LUTCF indicate that an advisor is interested in learning about the field and following best practices. More advanced certifications such as Chartered Life Underwriter and Certified Financial Planner are likely to indicate that a professional is a more experienced and well-informed source for financial advice.

Photo credit: ©iStock.com/FangXiaNuo, ©iStock.com/hfng, ©iStock.com/jhorrocks

 

The post What Is a Life Underwriter Training Council Fellow (LUTCF)? appeared first on SmartAsset Blog.

Source: smartasset.com

Health Insurance Myths Debunked

A health insurance policy is essential for anyone seeking to safeguard their future and avoid the catastrophic consequences of high medical bills. Whether you’re buying coverage for yourself or a health plan for your family, it’s important to get complete coverage. But despite this fact, millions of Americans remain uninsured, often because they believe one of the following health insurance myths.

Myth 1: I’m Young and Healthy; I Don’t Need Health Insurance

You’re never too young to start shopping for health insurance plans because you don’t know what’s around the corner. Medical expenses can be astronomical at any age and anyone can have an accident, fall ill or be diagnosed with a serious disease. 

It’s not pleasant to think about and many people prefer to bury their heads in the sand and live as if they are invincible, but they’re not. No one is.

Health care is very expensive in the United States, there’s no escaping that fact. This is one of the few developed nations in the world where being the victim of an accident or attack could lead to insurmountable medical expenses and essentially ruin your life. You can’t rely on luck and you can’t assume you’ll be safe just because you’re young, fit, and healthy.

In fact, buying at this young age has many benefits, including the fact that you’ll likely clear all exclusion periods by the time you actually need to start claiming.

Myth 2: The Benefits are Lost if I Don’t Renew by the Due Date

You should always try to pay your monthly premium on time, thus avoiding any issues and ensuring you are covered at all times. However, your health insurance coverage does not end the minute you miss a payment.

Insurance companies have a grace period, during which time your policy will remain active. This period allows you to gather the funds needed and to pay your monthly premium, thus keeping your policy active. 

Typically, this grace period lasts for between 7 and 15 days, but it differs from provider to provider. Check your policy for more details but try to avoid playing fast and loose with your payments as they could be the only thing protecting you.

Myth 3: It’s All About the Deductible

The deductible is the amount of money you pay before the health insurance policy takes over and to many consumers, it is the single most important part of any health insurance policy. However, while it is important to consider the deductible, you should not choose your policies based solely on which one has the lowest deductible.

Look for the sort of cover that they provide and whether this will suit your needs or not, and then focus on the deductible. 

It’s also important to find the right balance between a deductible that is cheap enough for you to afford when the time comes, but is not so cheap that it sends the premiums through the roof. To do this, avoid focusing on how much your first monthly payment will cost and ask yourself what you would do if you had to pay for a medical expense today.

Would you have an issue paying the deductible? Would it require you to borrow money from friends or family? If so, it’s too high and it’s time to go back to the drawing board.

Myth 4: I Have Insurance from My Employer so I Don’t Need any Additional Cover

If your employer offers any kind of group health insurance cover, take it, but don’t assume that it will cover you for everything you need. Read the small print, look for gaps, and seek to fill those gaps with your own cover.

With your own policy, you’ll also be protected if you lose your life. If anything happens in the time it takes you to find a new job, you could be left to foot the bill, making this an even scarier and more stressful time. But if you’re covered, you can take your time as you search for a suitable role.

Myth 5: It’s Not a Pre-Existing Condition if I Didn’t Know About it

If you have any pre-existing medical conditions you will be subject to an exclusion period, one that may last for up to 48 months. During this time, your insurance company will not pay out for any issues related to this condition and contrary to popular belief, not knowing about the condition is not enough to avoid this exclusion period.

If, somehow, it is proven that you had a medical condition that was simply not discovered at the time you applied, it will still be subject to an exclusion period. The good news, however, is that you can no longer be refused because of pre-existing medical conditions, which means that everyone can benefit from health insurance.

Myth 6: I Don’t Need Health Insurance If I Have a Life Insurance Plan

A life insurance policy can cover you for critical illness, which could be used to cover health care costs. You can also purchase accident and dismemberment insurance to cover you in the event you lose a limb. However, life insurance is designed to pay out a death benefit when you die. It goes to your loved ones, not you, and is therefore not a viable replacement for health insurance.

For complete cover, you should look into getting both life insurance and health insurance. You can find low-cost options for both.

Summary: Common Myths Debunked

If you don’t have any health insurance coverage, it’s time to change that and start looking for coverage today. Take a look at our guide to choosing a health plan to get started. We also have guides on everything from life insurance (term life insurance, whole life insurance, and other life insurance coverage) car insurance and pretty much all other insurance products.

By purchasing all of these together you could even save some money while getting essential coverage! Just remember to do your research, plan ahead, and never settle for less than you need as you may live to regret it in the future.

Health Insurance Myths Debunked is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Per Stirpes vs. Per Capita in Estate Planning

Three generations of one familyWhen creating an estate plan, one of the most basic documents you may wish to include is a will. If you have a more complicated estate, you might also need to have a trust in place. Both a will and a trust can specify how you want assets distributed among your beneficiaries. When making those decisions, it’s important to distinguish between per stirpes and per capita distributions. These are two terms you’re likely to come across when shaping your estate plan. Here’s a closer look at what per stirpes vs. per capita means.

Per Stirpes, Explained

If you’ve never heard the term per stirpes before, it’s a Latin phrase that translates to “by branch” or “by class.” When this term is applied to estate planning, it refers to the equal distribution of assets among the different branches of a family and their surviving descendants.

A per stirpes designation allows the descendants of a beneficiary to keep inherited assets within that branch of their family, even if the original beneficiary passes away. Those assets would be equally divided between the survivors.

Here’s an example of how per stirpes distributions work for estate planning. Say that you draft a will in which you designate your adult son and daughter as beneficiaries. You opt to leave your estate to them, per stirpes.

If you pass away before both of your children, then they could each claim a half share of your estate under the terms of your will. Now, assume that each of your children has two children of their own and your son passes away before you do. In that scenario, your daughter would still inherit a half share of the estate. But your son’s children would split his half of your estate, inheriting a quarter share each.

Per stirpes distributions essentially create a trickle-down effect, in which assets can be passed on to future generations if a primary beneficiary passes away. A general rule of thumb is that the flow of assets down occurs through direct descendants, rather than spouses. So, if your son were married, his children would be eligible to inherit his share of your estate, not his wife.

Per Capita, Explained

Older couple signs a will

Per capita is also a Latin term which means “by head.” When you use a per capita distribution method for estate planning, any assets you have would pass equally to the beneficiaries are still living at the time you pass away. If you’re writing a will or trust as part of your estate plan, that could include the specific beneficiaries you name as well as their descendants.

So again, say that you have a son and a daughter who each have two children. These are the only beneficiaries you plan to include in your will. Under a per capita distribution, instead of your son and daughter receiving a half share of your estate, they and your four grandchildren would each receive a one-sixth share of your assets. Those share portions would adjust accordingly if one of your children or grandchildren were to pass away before you.

Per Stirpes vs. Per Capita: Which Is Better?

Whether it makes sense to use a per stirpes or per capita distribution in your estate plan can depend largely on how you want your assets to be distributed after you’re gone. It helps to consider the pros and cons of each option.

Per Stirpes Pros:

  • Allows you to keep asset distributions within the same branch of the family
  • Eliminates the need to amend or update wills and trusts when a child is born to one of your beneficiaries or a beneficiary passes away
  • Can help to minimize the potential for infighting among beneficiaries since asset distribution takes a linear approach

Per Stirpes Cons:

  • It’s possible an unwanted person could take control of your assets (i.e., the spouse of one of your children if he or she is managing assets on behalf of a minor child)

Per Capita Pros:

  • You can specify exactly who you want to name as beneficiaries and receive part of your estate
  • Assets are distributed equally among beneficiaries, based on the value of your estate at the time you pass away
  • You can use this designation to pass on assets outside of a will, such as a 401(k) or IRA

Per Capita Cons:

  • Per capita distributions could trigger generation-skipping tax for grandchildren or other descendants who inherit part of your estate

Deciding whether it makes more sense to go with per stirpes vs. per capita distributions can ultimately depend on your personal preferences. Per stirpes distribution is typically used in family settings when you want to ensure that individual branches of the family will benefit from your estate. On the other hand, per capita distribution gives you control over which individuals or group of individuals are included as beneficiaries.

Review Beneficiary Designations Periodically

Multi-generational family

If you have a will and/or a trust, you may have named your beneficiaries. But it’s possible that you may want to change those designations at some point. If you named your son and his wife in your will, for example, but they’ve since gotten divorced you may want to update the will with a codicil to exclude his ex-wife. It’s also helpful to check the beneficiary designations on retirement accounts, investment accounts and life insurance policies after a major life change.

For example, if you get divorced then you may not want your spouse to be the beneficiary of your retirement accounts. Or if they pass away before you, you may want to update your beneficiary designations to your children or grandchildren.

The Bottom Line

Per stirpes and per capita distribution rules can help you decide what happens to your assets after you pass away. But they both work very differently. Understanding the implications of each one for your beneficiaries, including how they may be affected from a tax perspective, can help you decide which course to take.

Tips for Estate Planning

  • Consider talking to a financial advisor about how to get started with estate planning and what per stirpes vs. per capita distributions might mean for your heirs. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect, within minutes, with a professional advisor in your local area. If you’re ready, get started now.
  • While it’s always a good idea to consult with a financial advisor about estate planning, you can take a do-it-yourself approach to writing a will by doing it online. Here’s what you need to know about digital DIY will writing.

Photo credit: ©iStock.com/Georgijevic, ©iStock.com/monkeybusinessimages, ©iStock.com/FatCamera

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Source: smartasset.com

How do Life Insurance Companies Make Money?

Life insurance seems like a pretty good deal. You pay $30 a month for 20 or 30 years and in the event of your death, your family gets a sizeable cash sum, often in excess of $250,000. Every 12 seconds someone dies in the United States and these deaths occur across all demographics (although the majority are over 70) and from a myriad of causes.

If a life insurance company can afford to pay a $500,000 sum on a policy that’s collected less than $20,000, how can it afford to stay in business when life is so fragile, death is always a certainty, and they’re in it for the profit?

Contrary to what you might think, insurance companies don’t rely entirely on luck or underhanded tactics to stay in the black. There are actually three ways that an insurance company makes money and ensures those profits remain stable.

Underwriting

Underwriting is the process of taking a calculated financial risk in exchange for a fee. The word was coined as the underwriter, the “risk-taker”, would sign their name underneath a detailed outline of all risks they were willing to take.

Underwriting is performed by all life insurance companies and it’s a careful, considered process through which they can balance their profit and loss. There is no guarantee with the underwriting process and it’s not uncommon for them to lose money over the course of a financial year. However, what they lose one year may be offset by what they earn in another year.

How Insurance Companies Profit from Underwriting

Insurance is based on statistical analysis and probability. If you’re a healthy 20-year old with no preexisting medical conditions and no genetic issues, you’re considered to be very low risk. 

An insurance company may offer you a $500,000 payout on a 30-year term in exchange for a policy that costs less than $1,000 a year. They’re only making $30,000 over the term, but they know there’s a good chance you’ll live well beyond your 50th year, which means all of that $30,000 is profit.

In fact, statistically speaking, a 20-year old has a less than 6% chance of dying within 30 years and this applies to the general population. Once you account for medical issues, family health problems, smoking, drug use, dangerous jobs, and a plethora of other high-risk conditions, that figure drops to an infinitesimal sum.

The insurance company knows that if they have 50 healthy 20-year-olds on 30-year $500,000 policies, there’s a good chance that between 0 and 2 will collect. This means they will collect $1.5 million and payout between $0 and $1 million. 

The odds of a 20-year-old dying within that term increase if they have abused drugs/alcohol in the past, have a preexisting medical condition or their parents died of genetic disorders before they turned 50. In such cases, the underwriters will calculate the risks and create a policy that allows them to cover their costs.

By the same token, a life insurance company may refuse to provide a 30-year term to a 52-year-old, because according to the statistics, one out of every two will die within that term and they simply couldn’t offer realistic premiums.

Of course, these are just rough estimates, but it gives you a general idea of how life insurance companies operate. It’s also the reason why your premiums increase significantly if you are a smoker (smokers live 10 years less on average) are obese (obesity is considered to be as much of a mortality risk as smoking) or have a problematic medical history.

Canceled and Lapsed Coverage

Your life insurance policy can stop or be canceled at any time. Let’s return to the example of the 20-year-old paying premiums worth $1,000 a year. They may have taken out the life insurance policy because they just got married or they experienced a bout of paranoia after learning about a friend who died young.

But what happens when that relationship ends and that paranoia fades away; what happens if they go from being comfortably employed, to unemployed and desperate? They’re not the ones who will benefit from that payout, so they may decide that they’re just wasting their money, in which case they stop making the payments and the policy lapses. If this happens, the life insurance company gets all of the premiums and none of the liability.

Whole life insurance policies can also be cashed out. They build money through dividends and this entices the owner to give it all up for a big payday. If they’re struggling financially and realize they have a big balance waiting for them on their life insurance policy, they may be tempted to cash the check, close the account, and walk away with the windfall, thus removing all liability from the insurance company.

Refusing to Pay Out

Life insurance companies can also make money by refusing to pay out and pointing to a discrepancy. This is not part of their business strategy, and they don’t actively seek to scam their customers because, quite simply, they don’t need to. Thanks to underwriting, cash outs, lapse policies and investing, life insurance is a profitable enterprise without needing to resort to underhanded tactics.

However, they can and will refuse payouts if they determine that the contract was somehow breached. This can happen in any number of ways and for a myriad of reasons:

The Cause of Death Wasn’t Covered

Most causes of death are covered by most life insurance policies. However, there are some exceptions, including suicide. Many policies refuse to cover suicide at all, while others refuse to cover it if it occurs within the first 2 years of the policy.

More than 40,000 people take their own lives every year in the United States and it’s a common issue across all demographics. It’s also on the increase and is now the 10th biggest killer in the United States. 

As heartless as it might seem for an insurance company to refuse a payout for someone who took their own life, it’s important to remember that their underwriting is based purely on probability, and because suicide is one of the biggest killers in young men, it’s something that has to be considered.

The policy should state clearly which causes of death are covered and which ones are not. It’s also something you can discuss with the insurance company when you take out your policy.

Important Information was Not Disclosed

This is the most common reason for a payout to be refused. In some cases, the applicant is looking for cheaper premiums and knows that a few seemingly innocent lies will shave tens of dollars off their premiums. 

The policyholder may also assume that certain information isn’t relevant or be too ashamed to disclose it. For instance, if they were cautioned for driving under the influence of drugs or alcohol it may not seem relevant to the underwriting process, but if they die in a road traffic accident it could prevent a payout.

In the majority of cases, however, they simply forget. A life insurance policy is something you fill out in one sitting and something that requires you to list all previous medical conditions, hospital visits, and health complaints. It’s easy to forget a few things here and there.

There is No Beneficiary

A life insurance policy can only be paid directly to an heir when they are named as a beneficiary. If there is no beneficiary, it will be paid to the policyholder’s estate, from which their heirs can make their claim.

This becomes problematic if the policyholder has a lot of debt, as the debtors will then line up to take their share from the estate. It can also make life difficult for loved ones trying to make a claim on that estate. It’s always recommended, therefore, to name beneficiaries on the life insurance policy and to back this up by writing a will.

The Contestability Period

The above issues become more prevalent during something known as the contestability period. This begins as soon as the policy goes into effect and it can last for 1 or 2 years, depending on the policyholder’s state of residence.

If the policyholder dies during this period, the life insurance company will seek to contest it by looking at all of the details and ensuring they match. They will check the cause of death against previously filed medical reports and will make sure the correct information was supplied at the time the policy was filed and that there are no discrepancies.

Once this period passes, it’s unlikely there will be any issues, but they can still occur. The insurance company may, for instance, investigate the claim if they believe it was purchased for the sole benefit of the beneficiaries (for example, the policyholder purchases it knowing they were going to commit suicide or were about to die).

Summary: Payouts are Rare

Studies suggest that as few as 2% of all term policies pay out, and the most common reason for non-payment is that the policyholder survives the term. This is a statistic that detractors like to quote and it’s often followed by a claim that life insurance is just institutionalized gambling. 

To an extent, they’re right. You’re essentially gambling against a house that always wins and, like a casino, it always wins because, for every player that wins, 10 others will lose. The difference is that life insurance provides some much-needed peace of mind while you’re alive and ensures your loved ones are covered in the event that anything happens to you.

How do Life Insurance Companies Make Money? is a post from Pocket Your Dollars.

Source: pocketyourdollars.com