If you are anything like us, you have burning questions that you want answered. That’s what the Ask the Expert series is all about – it’s a chance to get questions answered by local experts.
Today, we’re turning to our friend Ruth Ahnen with Modern Woodmen of America. She is quizzing us on a topic many of us know little about – life insurance.
Life insurance is one of the most important financial products a person can own.
It’s also one of the most confusing.
In fact, the National Association of Insurance Commissioners estimates that over 60 percent of Americans don’t even understand their own coverage.
What about you? Do you know the answers to these common life insurance questions?
1. Which one of these is not a reason to purchase life insurance?
a. To pay for funeral costs.
b. To pay off outstanding debt.
c. To ensure your family’s financial security.
d. To make your beneficiaries rich.
Answer: D. Life insurance can cover final expenses and provide your family with a financial cushion after your death. While it’s difficult to think about, this is a way you can show your love to your family, even after you’re gone.
2. During the underwriting process, a life insurance provider considers your:
a. Health history.
b. Potentially dangerous hobbies.
c. Smoking and drinking history.
d. All of the above.
Answer: D. All of these factors can be considered when applying for life insurance.
3. Life insurance rates are based largely on your:
b. Age and health.
d. Mortgage payments.
Answer: B. Your age and health are the two largest factors when determining the rates. This means younger and healthier applicants typically pay less.
4. True or false: Beneficiaries have to pay taxes on the death benefit from a life insurance plan.
Answer: False. Your beneficiaries are not required to pay taxes on life insurance death benefits, which eases their financial burden.
5. Which one of these individuals would not have an insurable interest in you?
c. Business partner.
Answer: A. An insurable interest is required for a beneficiary to a life insurance policy. This means that the person would be subject to financial or other loss if the insured died. While insurable interest is present for spouses, parents and business partners, it is not present for neighbors.
6. What type of insurance provides coverage for a specific period of time and does not build cash value?
a. Universal life insurance.
b. Whole life insurance.
c. Single premium life insurance.
d. Term life insurance.
Answer: D. Term life insurance pays a benefit in the event of the death of the insured during a specified term. Unlike whole life insurance, term insurance does not build cash value.
7. The cash value of a permanent life insurance plan is:
a. Often available to withdraw or borrow.
b. Also called the death benefit.
c. A refund of excess premium payments.
d. None of the above.
Answer: A. A permanent life insurance plan builds cash value (unlike term insurance). This cash value can be withdrawn or borrowed by the insured.
8. True or false: Whole life insurance is a type of permanent life insurance.
Ruth Ahnen is a financial representative with Modern Woodmen of America. She helps individuals, small businesses and families to plan for a secure financial future.
Disclosure: Thanks to Ruth for sponsoring today’s post. We at QCMB love working with local businesses to share positive information and make our community a better place to live, work and play.
Ruth is a registered representative. Securities offered through MWA Financial Services Inc., a wholly owned subsidiary of Modern Woodmen of America. Member: FINRA, SIPC.