Huntley Wealth Insurance | Instant Term Life Insurance Quotes!

Term life insurance policies for individuals with high risk medical conditions. For term or whole life, we're the experts.

877.443.9467

  • About
  • Blog
  • Tools
  • Contact
Menu
  • Start Here
    • Life Insurance Basics
      • How Much it Costs
      • How Much I Need
      • How do I Buy Life Insurance?
      • What is Term Life Insurance?
      • Best Life Insurance Companies
    • Types of Life Insurance
      • Term Life Insurance
      • Whole Life Insurance
      • No Exam Life Insurance
      • Universal Life Insurance
      • Return of Premium Life Insurance
    • Problems We Solve
      • Approvals with Pre-Existing Conditions
      • Business & Key Person Insurance
      • Estate Planning Life Insurance
      • Charitable Giving
    • Tools & Calculators
      • Free Quote
      • Life Insurance Needs Calculator
      • Savings Tips
      • Term vs. Whole Life Calculator
      • The Wise Investment Calculator
    • Close
  • Sample Quotes by Age
      • 20 to 29 Years Old
      • 30 to 39 Years Old
      • 40 to 49 Years Old
      • 50 to 59 Years Old
      • 60 to 69 Years Old
      • 70 to 75 Years Old
      • Other
    • Close
  • Free Quote
  • Pre-existing Conditions
    • Have a Pre-Existing Condition? Why 13,000 Others Trust UsDoctor measuring blood pressure
    • Common Health Conditions
      • High Blood Pressure
      • High Cholesterol
      • Overweight
      • Diabetes
      • Cigarette Smokers
      • Cigar, Pipe and Chewing Tobacco
      • Sleep Apnea
      • Prostate Cancer or Enlarged Prostate
      • Crohn’s Disease
      • Skin Cancer
    • Articles
      • Already Been Declined?
      • Success Stories
      • High Risk Insurance
      • Other
    • Close

7 Mistakes to Avoid When Purchasing Life Insurance

By Chris Huntley

Buying life insurance is onBeware of these Mistakes When Applying for Life Insurancee of the most important decisions you are going to make.  You buy it to protect your family from getting caught out financially.

I know most people think that it’s a straightforward thing to do – buy a policy and get covered, and that’s all there is to it.  I hate to break the bad news, but even with life insurance, things can go wrong and bite you in the behind if you don’t do it right.  Yup, buying life insurance has its perils, so I’m going to talk about some seemingly innocent mistakes that can cost you big if you’re not careful.

Here are 7 common mistakes that some people make all the time.  Pay close attention so you don’t get caught out, or act quickly to change your policy if you find you’ve already made one of these unfortunate blunders.

“Don’t make these mistakes when buying life insurance.”  Click to Tweet.

Not Doing your Homework

Not all life insurance policies are the same, and not all policies meet your own specific and very unique needs.  Don’t make the mistake of just picking a life insurance policy out of a hat for the sake of convenience.  Sit down and talk out your own individual situation with an insurance broker you are comfortable with, and don’t buy without knowing something about the life insurance company where you’re thinking of purchasing your policy.

The “Unholy Trinity” of Life Insurance Policies

Most policies consist of a policy holder with a named beneficiary.  For example, think of yourself as the policy owner/insured of the life insurance with your spouse as the beneficiary.  If you were to die under a term life policy for example, your spouse would get the designated death benefits and these benefits would be tax free.  Heck, practically everybody who has bought a policy knows that the death benefits are always going to be income and gift tax free, right?

Wrong!  In the example above, that’s the way it works, but not everybody has structured their policy that way.  This is where the unholy trinity comes into play.  Some people have their life insurance structured slightly different where there are actually 3 different parties involved.  First, there is the owner of the policy (the person who bought the policy), the person being insured (someone who is different from the owner of the policy), and the beneficiary.

An example would be a father buys a life insurance policy (owner) for his son (the insured), and the son’s wife is the named beneficiary.

If the son dies, then his wife gets income tax free death benefits, but because the way the tax people look at it, the wife is getting a gift from her husband’s father, the owner of the policy and this gift is taxable to the father.  The lesson here is that the owner and the named insured of a life insurance policy or the owner and beneficiary must be the same person.

The Business Insurance Policy Unholy Trinity

Many business people also own life insurance to protect their families, to cover costs associated to their business, and to see that their loved ones get tax free money.  Unfortunately, they may have stumbled into the bad luck scenario that happened above.

The unholy trinity for a business would be where 1) the business buys the policy  2) the owner of the business is the named insured and 3) a member of their family is the named beneficiary.  In the previous scenario, the father ended up having to pay a gift tax, but in the business scenario, it’s going to be worse, because now the beneficiary would be subjected to paying income tax.  It boils down to how you structure it again –  the owner of the policy and the named insured has to be the same person.

The Estate as Beneficiary

Never deliberately use your estate as the named beneficiary.  Also, if you have a named a beneficiary and they die before you do, the estate automatically becomes the beneficiary unless you change it otherwise.

You never want the estate to be the beneficiary of your life insurance policy because it opens a whole can of worms such as possibly being required to go into probate, receiving claims from creditors, and becoming subject to inheritance or estate taxes as a result.  Always make sure you have a named beneficiary on your policy.

Key Employee Life Insurance Mistake

Many companies buy life insurance on their key employees for a variety of reasons.  You might know that after August 17, 2006 that generally, all employer owned life insurance contracts purchased for key employees are subject to income tax.  However, you can get around this potential tax mess if specific employee notice and requirements are met because there are exceptions that do apply, so the rule is not as rigid as it appears.

The important thing to note is that these employee notice and requirements must be met before the policy is issued.  If you were under the impression you were going to use these notices and requirements to avoid taxes after the fact, then you will be out of luck.  You will have to talk to broker about re-issuing the policy the proper way to reap any possibility of tax deductible death benefits.

Changing a Policy after Taking a Loan

Permanent life insurance policies such as whole life, for example, have a cash accumulation value.  After a certain point in the life of the policy, you are allowed to borrow against that cash value.  If you have done so, and then decide to change your existing policy, the status of the loan can change as well. The reason is because if the new policy does not contain a carry over of the loan you took out on the old policy, its status changes to that of a gift and becomes taxable.

Taking a Loan or Using the Cash Value as Retirement Funds

Most people use permanent life insurance polices to either borrow against or use for their retirement, and believe that the funds will automatically be non-taxable.  Wrong!

Some time back, Congress enacted into the Internal Revenue Code a provision known as the ‘cash rich rule’.  After 1984, a portion of policy benefits which are issued against a policy before 15 years have elapsed during the life of the policy, may be subject to income tax.  If you plan to access funds as a loan or use towards your retirement, wait until year sixteen of the policy to avoid these potential tax complications.

Lying on Your Application

All of us want to save money on our insurance rates and most of you folks out there want to do so legitimately.  Unfortunately, there’s a small group who thinks it’s a good idea to scam or pull a fast one on the insurance company.

Bad move!  Insurance companies have been doing their thing for a couple hundred plus years.  If you don’t think they don’t know every trick in the book then you’re deluding yourself.

So, what if you get caught – what’s the worst thing that could happen?  By trying to gyp the insurance company out of a few bucks your foolishness could end up leaving your family in a world of financial hurt. Your life insurance claim might end up being challenged and declined while leaving your loved to clean up the mess and pick up the pieces.  Is this smart?  Is this the legacy you want to leave behind?  Of course it’s not!

Need help applying for life insurance without making these mistakes?  Call us at 877-443-9467.

*While we make every effort to keep our site updated, please be aware that "timely" information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Huntley Wealth & Insurance Services and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.

Filed Under: Life Insurance 101 Tagged With: life insurance tips

All Comments

  1. Nicole on August 15, 2012, 11:27 pm

    I am interested in opening a policy for my mother in law. My contact number is xxx.

    Reply
    • Chris Huntley on September 13, 2012, 11:54 am

      Hello Nicole,
      This comment went into my spam folder and I just saw it. I’ll have Ellen from our company give you a call ASAP. Also, I have deleted your phone # for privacy purposes.

      Reply
  2. patti on May 20, 2016, 12:37 am

    I need to change my life is policy because the two policies I have, one had gone pass the 30th year and the price now has tripled, the second policy will be changing in 4 years, so I think it’s better to change both of feel I don’t need as much as we did 30th years ago because all of are kids are adults with their family.so we just need enough so if one of does move on we only need enough for ourselve to live on our own. I feel I need more than than my husband cause he can still work, where I have been a house wife/ mother all of our marrage. He agress, He just wants enough to berry me and pay off some of the higher bills. Where I need enough to live on until it’s my

    Reply
    • Kimberly Ely on September 16, 2016, 12:43 pm

      Hi Patti,
      I would say you should indeed simplify your life, and simply get one policy on each of you. The sooner you get a new policy, the less you will pay, as the price goes up with each birthday, so better to lock it in sooner rather than later. You can take out a larger policy on your husband, since you will need more when he passes on, and he can get a smaller policy on your, as he needs less. Simply call our toll-free number and speak with one of our wonderful agency partners who will be happy to help you – 877-443-9467…or, email me directly, and I will help you out! Best regards!

      Reply

Leave a Comment Cancel reply

Your email address will not be published. Required fields are marked *

This site provides term life insurance quotes. Each rate shown is a quote based on information provided by the carrier. By requesting a quote, you agree to the Huntley Wealth & Insurance Services Privacy Policy. By submitting your personal information, you are making a consumer inquiry for life insurance by licensed insurance agents. You consent and expect to be contacted by a licensed agent via phone, email, text, or direct mail. Huntley Wealth & Insurance Services will not sell your information to a third party. Any health or personal information shared is protected by applicable HIPAA privacy laws and regulations.

Invitation for application for life insurance on insuranceblogbychris.com are made through its designated agent, Christopher Huntley, only where licensed and appointed. All applications in the state of California will be submitted by Huntley Wealth Insurance Services, Inc., DBA Huntley Wealth & Insurance Services, California Lic. #0K23182. Christopher Huntley is a licensed life insurance agent in 48 states. The following agent license numbers are provided for Christopher Huntley as required by state law: CA Lic. #0E60169, LA Lic. #529134, MA Lic. #1933366, MN Lic. #40239532, UT Lic. #323130, TX Lic. #1605079, AR. Lic. #8274215. Additional licenses are available upon request.

Commercial use by others is prohibited by law. No portion of insuranceblogbychris.com may be copied, published, faxed, mailed or distributed in any manner for any purpose without prior written authorization from the owner.

Life insurance policies described, quoted, shown, and illustrated throughout this website are not available in all states and may include those issued by: American General Life; Banner Life Insurance Company, Urbana, MD, and William Penn Life Insurance Company, Garden City, NY, both Legal & General America companies; United of Omaha Life Insurance Company, Omaha, NE, a Mutual of Omaha affiliate company; Fidelity Life Association, A Legal Reserve Life Insurance Company, Oak Brook, IL; Genworth Life and Annuity Insurance Company, Lynchburg, VA and Genworth Life Insurance Company of New York, New York, NY, member companies of Genworth Financial, Inc.; Lincoln Life & Annuity Insurance Company of New York, Syracuse, NY and The Lincoln National Life Insurance Company, Fort Wayne, IN, both insurance company affiliates of Lincoln National Corporation, whose marketing name is Lincoln Financial Group; First MetLife Investors Insurance Company, New York, NY, MetLife Investors USA Insurance Company, Irvine, CA and Metropolitan Life Insurance Company, New York, NY, all three members of the MetLife family; Protective Life and Annuity, Birmingham, AL; Pruco Life Insurance Company, Newark, NJ and Pruco Life Insurance Company of New Jersey, Newark, NJ, member companies of Prudential Financial, Inc., Newark, NJ; VOYA Life Insurance Company, Minneapolis, MN, VOYA Life Insurance Company of New York, Woodbury, NY and Security Life of Denver Insurance Company, Denver, CO, member of the ING family of companies; Transamerica Financial Life Insurance Company, Harrison, NY, and Transamerica Life Insurance Company, Cedar Rapids, IA, both AEGON companies.

Rates and time taken to qualify and purchase a life insurance policy vary by product and underwriting requirements.

Copyright © 2018 – All Rights Reserved