One of the most stressful projects that we did this year was to shop for life insurances. The day after Franco semi-failed the medical exam for his insurance application, an officemate, who was Franco’s batchmate in college, passed away in her sleep. We were all shocked. It was so sudden. She even went to work the night before. Her youngest was only 10 months old. I cried for days because of sadness for her and her family and because I was worried sick for my husband. Not just Franco’s health, I also lost sleep analyzing the costs. First we asked for insurance proposals for X amount. After realizing that the cost would badly hurt our regular savings, we decided to ask for new proposals for Y amount which is equal to X minus the value of our group life insurance from work. Then, I asked for different payment schemes. From 10 year pay periods, I thought of considering the 30 year pay proposals. After Franco’s medical exam, I reconsidered the variable unit linked proposals. Since we are going to spend a considerable chunk of our annual budget to insurances, might as well pay for insurance that comes with investments. In the end, we decided to go with traditional whole life 10 year pay insurance.
We learned from Efren Cruz, our financial adviser, that the best way to compute how much insurance one needs is to imagine the worst and estimate how much time and money one will need to get back on her feet. I think I need 5 years. Franco, since he earns more and he is the more resilient between the two of us, might need just 3 years. From the 20-30 plus proposals that we reviewed and the many agents I met, here is what I learned:
– Depending on the face value of the policy, your health, you and your family’s medical history and your age, you might be required to undergo a medical exam.
– Depending on the result of the medical exam, you might get rated which will effect the premiums and coverage. Or you could be denied. Because Franco is overweight, his annual premium increase by 50%! It was also from the medical exam that we learned that Franco’s blood pressure is considered pre-hypertensive. One of the riders that was important to me, the rider that pays out once the policy holder is diagnosed as having a critical illness like cancer, stroke etc, was not granted at first. I wrote an email to the head of the underwriting department and requested for reconsideration since Franco has no history of hypertension. They granted my request but they doubled the premium for that rider. Overall, the annual premium for Franco’s insurance jumped up by 50% because of his weight and elevated blood pressure.
– Insurance companies have a shared database of the ratings of their policyholders and applicants. If insurance company A denies your application for insurance, insurance company B will most likely find out.
– There is a two-year contestability period. If something happens to the policy holder, the insurance company has the right to investigate the cause of death. If they find out that the policyholder withheld important information or misrepresented facts during the application, the insurance company may opt not to pay.