Just in time for Life Insurance Awareness Month, we’re here to answer some of the more interesting questions about life insurance. Between emails, phone calls, online chats, our blog posts here on Quotacy.com, and our Q&A Friday videos on YouTube, we answer a lot of questions about life insurance. Here are five common questions we get that life insurance shoppers tend to have a hard time finding straight-forward answers to.
1. Is it illegal for someone to buy life insurance on me?
No, it’s not illegal for someone to buy life insurance on you, as long as they have your consent and there’s a financial reason for it. Spouses buy life insurance on each other all the time. Children buy it on their parents and vice-versa. Business partners buy it on one another.
You can’t simply buy life insurance on your neighbor. You can’t buy a policy on your aunt if there’s no financial reason for it.
Insurable interest is the life insurance lingo for “financial reason”. Insurable interest means that the person you want to buy life insurance on needs to impact you financially. If their death would cause financial hardship on you, then you have insurable interest.
2. How long does it take for the life insurance company to pay out the death benefit? Is there a fee?
Once an insurance company receives the necessary paperwork (life insurance claims form from the beneficiary(ies) and copy of the death certificate) it takes approximately 7-14 business days to receive the payout.
However, if the insured individual dies within two years of buying the policy, the payout may take longer. This is because the life insurance company has a right to investigate the claim first. These first two years is the contestability period. The insurance company can contest the claim if insurance fraud or misrepresentation is discovered.
There is no fee to claim the death benefit from a life insurance policy. If the policyowner has taken out loans against the policy and the insured dies before the loan is paid back, then the balance is first taken from the death benefit proceeds. But this isn’t a fee, just the loan being paid off.
It’s not illegal for someone to buy life insurance on you, as long as they have your consent and there’s a financial reason for it.
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3. My ex-spouse has life insurance on me and I no longer want him/her to have it. How do I get it canceled?
Unfortunately, this isn’t an easy fix. Insurable interest and consent is only required when a life insurance policy is purchased. It’s not required to be maintained throughout the life of the policy.
During the divorce process, issues regarding life insurance policies are usually taken care of. If not, you will have to work with your ex-spouse to deal with the life insurance policy issue. You can ask them to cancel it or transfer ownership over to you. As the owner, they are not required to give in to your request.
If you fear that your ex-spouse has bad intentions, it’s best to contact the authorities. You may also find guidance from your state’s insurance commissioner’s office. You can find this information here: National Association of Insurance Commissioners.
4. Will the life insurance company pay out even if I die shortly after buying the policy?
Yes. Even if you buy a life insurance policy and die the day after it becomes 100% inforce (activated by the insurance company) the policy will pay out the full death benefit to your beneficiaries.
One exception to this is death by suicide within the first two years of owning the policy. Another exception is if the insured dies by homicide. The insurance company will likely first investigate that death a little bit closer to make sure the insured was not killed for the life insurance death benefit.
In addition, if death occurs within first two years of the policy being active (the contestability period) the insurance company has a right to investigate the claim before approving it. They can contest paying the benefit if it is discovered that you tried to commit insurance fraud.
5. My parents bought life insurance on me when I was young. Is it mine now that I’m an adult?
It’s perfectly legitimate and common for parents to buy whole life insurance policies on their children. Parent policyowners are not required to transfer ownership to you when you become an adult, although some do.
Whole life insurance policies accumulate cash value. If parents have been paying into this policy for many years, it could have accumulated a significant cash value and they may have plans to later surrender the policy or take loans out against the value to supplement their retirement.
If you want to own the policy, you can ask your parent to transfer ownership to you. You can even offer to pay your parents the value of the policy in exchange. However, as owners of the policy, your parents have control and are not legally required to give up ownership.
Have more questions about life insurance? We have lots of information. For answers to frequently asked questions about term life insurance, head over to this page: Term Life Insurance FAQs. For answers to frequently asked questions about permanent life insurance, head over to this page: Whole Life Insurance FAQs.
Ready to get life insurance? Head over to our term life insurance quoting tool. No contact information required to see pricing. You can view quotes online instantly and apply right online when you’re ready.
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