Life Insurance

How Does Life Insurance Work?

Ask a Life Insurance Attorney for Legal Advice

Life insurance is designed to provide financial protection and support for a person’s spouse and dependents in the event of an unexpected death. In some lines of work, life insurance might seem more potentially necessary than others, especially if their day to day duties involve great personal risk. However, it is recommended that anyone who can afford life insurance purchase enough to care for their family in the event that they no longer can. Beneficiaries of a deceased person’s life insurance policy can use the money to pay for their living expenses, school, debt, or other necessary expenses. This ensures that the family of a deceased loved one is provided for in the event that a provider passes away.

The cost of life insurance might vary depending on the policyholder’s age, occupation, hobbies, and preexisting health conditions. The amount of money the policyholder wants their family to have access to in the event of their death can also affect the cost of life insurance. To learn more about your current life insurance policy or to discuss your options for life insurance, contact a life insurance attorney.

What are the Statistics on Life Insurance?

When considering the benefits of life insurance, it’s a good idea to look at the data surrounding the relative need for it. There are a variety of algorithms involved when deciding how much and what kind of life insurance someone should purchase to protect their family. A life insurance attorney can help evaluate a potential policyholder's needs and prevent someone from spending unnecessary money on a policy they don’t need.

Let’s go over some life insurance statistics:

• According to Policygenius, 54% of American adults have life insurance, but 40% of those adults wish they had purchased their policies at a younger age.
• According to research by LIMRA, 1 out of 5 people who have purchased life insurance do not believe they have enough.
• Financial advisors generally recommend policyholders purchase 10 to 15 times the amount of their annual income when buying life insurance.
• The rates for life insurance policies tend to be two to three times greater for smokers than nonsmokers. However, after a year without smoking many companies will offer nonsmoker rates. according to Policygenius.
• According to LIMRA, the most common reasons people cite for purchasing life insurance in order of most common to least common include to cover burial/funeral expenses, wealth transfer, income replacement, supplement retirement income, or to pay off a mortgage.
• People tend to grossly overestimate the cost of life insurance according to a study by LIMRA, with 44% of millenials overestimating the cost of this insurance by five times the actual amount.

The Dangers of Life Insurance Bad Faith

It is important to note that with any kind of insurance policy there is the possibility of insurance bad faith. Insurance bad faith occurs when an insurance adjuster or company unfairly denies or reduces a policyholder or beneficiary’s claim. If you suspect you are suffering from life insurance bad faith, look for the following red flags and contact a life insurance attorney immediately:

• Attempts to unfairly rescind the policy. Rather than investigate the reasons that a claim should be approved, insurance companies might instead try to investigate reasons that a claim should be denied. Instead of verifying the reasons a beneficiary is eligible to make a claim on the life insurance, some insurance companies might choose instead to look for something in the deceased’s recent medical history which could count as a material misrepresentation. This is a significant warning sign that bad faith may be at play.
• Unreasonable delays. This is true of any insurance policy, including life insurance. If an insurance adjuster takes unnecessarily long delays to get back to you, answer your questions, or pay out a claim, this could indicate insurance bad faith.
• Failure to properly notify regarding a lapse in policy. In the months before a policyholder passes away, due to their medical condition it is occasionally not possible for them to continue to pay their monthly premium toward life insurance. However, in order for a life insurance policy to be considered officially lapsed, the policyholder must have received adequate notice before the policy was terminated. If this did not happen, the beneficiaries are still eligible to make claims on the policy.
• Misinterpreting policy language. It is not uncommon for insurance adjusters to appear to intentionally misinterpret policy language. If it seems as if the adjuster you are speaking with is misrepresenting the policy provisions, this could indicate insurance bad faith and should be addressed immediately.
• Exorbitant reliance on policy exclusions. If an insurance adjuster attempts to justify the reduction or denial of a claim based on unnecessary, inaccurate, or exorbitant exclusions listed in the policy, this could indicate insurance bad faith and an attempt to deny or reduce a valid claim made by a beneficiary.

To learn more about life insurance, how to pick a policy, or to address issues of insurance bad faith, seek legal counsel from a life insurance attorney.