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Life insurance is a contract between you and the life insurance company, under which you pay premiums (monthly or annually) for a payment that your living parents will receive upon your death, known as principal. death. In the event of death, the insurance company pays the death benefit to the beneficiary of your choice.
There are two types of life insurance: permanent life insurance and term life insurance. Both may require a medical examination as part of the approval process, called underwriting. The underwriting process can take four to six weeks, and once you’re approved, you’ll receive a policy. There are several dates to consider once you receive your policy, especially the effective date.
What is the effective date of the life insurance?
The underwriting process is how the insurance company determines your insurability – that is, how much risk you are exposed to and how much death benefit you are entitled to. The insurance company collects information about your health, work, income, finances, and other personal information to determine how much it will insure you and what your premium will be.
The effective date is the date your life insurance coverage begins. If your effective date is September 1, 2021 and you die before that date, your policy will not pay your beneficiaries. If you die after this date, your contract will pay your beneficiaries.
While the effective date is the day your coverage begins, the issue date is the date your policy is issued to you for acceptance. You can accept or reject the policy. If you die between the issue date and the effective date, your beneficiaries will not receive your death benefit unless you have opted for temporary coverage.
Some companies offer term life insurance until your application is approved
If you don’t have a previous life insurance policy in force, some insurance companies offer conditional or term life insurance until the underwriting process is complete.
If you’re in the process of purchasing a traditional life insurance policy and your provider offers term coverage in the meantime, you might want to consider it so you know you’re covered while you wait. You pay the regular premium and if you die during the subscription, your beneficiaries receive your death benefit. It ends once you are approved for full coverage.
What is the two-year waiting period?
If you have a guaranteed issue or simplified issue life insurance policy, there is usually a two-year waiting period. Guaranteed issue life insurance is sometimes referred to as “end-expense” insurance because the coverage amounts are so low that they basically only cover burial and burial costs.
Guaranteed and Simplified life insurance policies are not medical life insurance policies. Because there is no medical examination, you are a higher risk for the insurance company. Some insurance companies have a two-year waiting period for these policies.
If you die within the first two years of coverage, the policy will not pay. So if your effective date is September 1, 2021, your beneficiaries will not receive a death benefit unless you die after September 1, 2023. Check with your insurer if you have a two-year waiting period.
What is the “contestability” period for life insurance?
Most insurance companies have a “contestability” period. The contestability period varies by carrier, but is generally one to two years from the effective date. According to AARP, if you die within the first two years of coverage, the insurance company may ask for your medical history regarding your death.
The contestability period is different from the two-year waiting period for guaranteed issue and simplified issue life insurance contracts. If it is discovered that the policyholder lied on the claim or failed to disclose material facts, the insurance company may invalidate the policy.
Policy expiration date
If you have permanent life insurance, your insurance lasts your entire life. However, if you have term life insurance, it lasts for a specific period – 5, 10, 15, 20 or 30 years – and then has to be renewed, which is why it is cheaper than permanent life insurance. .
For more information, you can read our guide to life insurance terms and definitions.