Having appropriate and adequate life insurance coverage is an essential part of most physicians’ financial plans. Even if you have a whole life policy as part of your retirement portfolio, you may also be considering a term life policy.
Often, people use term life insurance to meet specific objectives. For example, if you’re starting a private practice and need to borrow money or buy real estate for a medical building, you may want extra protection for your family in case something should happen to you before you pay off the loan or mortgage. You don’t need a larger permanent policy, just extra protection for a specific period.
Or maybe you’re newly married and just starting to think about a whole life policy. You can use a short term life policy to cover your family until you’ve done your research and selected the best whole life policy for your needs.
Whatever your reason for considering term life, you should prepare for the application process. Here are some of the questions you’ll need to answer:
How Long Will You Need Coverage?
Since term life insurance is for a set period, you must determine how long you need the coverage. If you have a large loan or mortgage that you’re paying off, you may want to set the term for the length of that obligation.
If you want to ensure there is money for your children’s college education, you might set the term to coincide with your children’s school years—perhaps running until your youngest child reaches age 25.
If your term life policy supplements your whole life policy, you could set the term to end with your anticipated retirement age, when you’ll be eligible to receive Social Security or other benefits.
Who Are Your Beneficiaries?
The objective of taking out term life is to provide death benefits should you die. Typically, this will be a cash payment to your spouse and children—the people who will suffer the greatest financial hardship as a result of your death. Here are a few considerations:
- You will need to select both a primary and contingent beneficiary. The primary will receive the full death benefit. However, should your primary beneficiary predecease you, the contingent(s) serves as the alternate recipient(s).
- Determine if there are any restrictions on the choice of beneficiary. In some states, for example, you are required to name your spouse as the primary beneficiary unless you receive a waiver. In community property states, your spouse is automatically entitled to half your policy—even if not named. If you don’t specify a beneficiary, the death payment will go into your estate.
- If you are naming your children as beneficiaries, you may need to set up a living trust—either because they are minors or because you don’t want them to squander the money before they are mature enough to be responsible for their decisions. You may wish to discuss the naming of beneficiaries with your insurer and your attorney.
Which Payment Plan Will Work Best?
With most policies, you will have options as to how you set up your payment plan. You’ll probably be able to choose from annual, semi-annual, quarterly or monthly plans.
You may find that you can save money and receive a lower premium by paying annually. Also, you might get a discount for setting up your payments as an automatic bank withdrawal.
Do You Have Other Life Insurance Policies?
The application will most likely ask about other life insurance policies. This information may help you and your agent discuss policy consolidation or even the choice of carriers. In addition to having basic information about the policy, such as type, coverage, carrier and policy number, you should have information about the cancellation rules.
Are You a High Risk?
As part of the underwriting associated with every life insurance policy, the insurer needs to make a thorough assessment of the risk associated with covering you. Be prepared to answer several questions about your activities, hobbies and habits.
Have at hand the dates of any driving-associated events that occurred within the last five years, including a DUI violation, suspended license, accident or moving violation. Insurers also want to know about travel, especially to remote or exotic locations, and any dangerous sports and hobbies you pursue. If you race motorcycles on the weekend, for example, your insurer will want to know. This information probably will not prevent you from getting a policy, but it may increase your premium payments.
Do You Require Any Policy Riders?
A policy rider is an additional provision attached to your policy that specifies supplemental benefits, protection and coverage. While riders will increase your premium payments, they may be important for ensuring the security of your family. If you have any special requirements, discuss them with your insurer when you apply for the policy. You may be able to append your policy with a special rider.
Regular riders include:
- Children’s term life rider, which covers your children on your policy
- Waiver of premium rider, which pays your premium in the event you are disabled
- Payor rider, which waives your premium payments should you die before a dependent child beneficiary reaches a specified age
- Accidental death benefit rider, which provides an additional payment in the event your death is the result of an accident
What’s Your Physical and Medical History?
It shouldn’t surprise you that your term life application will delve into your physical condition and medical history. Some insurance companies will require an in-person medical exam to check height and weight, collect blood and urine samples, measure blood pressure and make an auditory check of your heart and lungs.
Others will accept detailed answers about your health and family medical history. And in a few cases—based on the amount of coverage and your age—you may be required to undergo additional medical tests.
Be prepared to document the significant health and medical issues of your immediate family. In the case of parents, grandparents and siblings, you’ll need to provide the age of onset of any condition(s) and whether it was a cause of death.
You’ll need to provide your medical history and a list of any medications you take. Also, you’ll be asked about weight, health issues and lifestyle habits, such as drinking, smoking and exercise. It’s essential to be honest. If you are caught lying, you risk your premiums going up significantly or worse, your policy could be canceled or death benefits denied.
Since insurers share your medical records through the Medical Information Bureau (MIB), you should request your file before your policy application and review it to ensure that all information is correct. You can learn more and request a free copy by going to the MIB website.
When considering term life insurance, give adequate consideration to your needs upfront and enter the application process having gathered all the necessary information. When you are prepared, you’ll find term life to be an easy and affordable way to provide your family with extra protection.
