I receive questions daily from consumers who are trying to understand their insurance policies. And for more than a decade of answering questions about auto, home, health and life insurance, the two top questions center on life insurance: How do I find the lost policy of a deceased relative, and how do I determine if someone has taken out a "secret" life insurance policy on me?
These common questions reveal life insurance myths that will continue to endure - often due to misinformation online.
One myth is that "someone" maintains a huge database of all life insurance policies sold. Unfortunately, the truth is that it's really every man for himself - life insurance companies each maintain their own policyholder records and don't go around sharing them.
The other big myth is likely born from paranoia - and possibly "true crime" TV shows: that someone you barely know, someone you hate or someone who's plotting against you can buy a life insurance policy on you without your knowledge.
Now's a good time to take a step back and crack open the biggest life insurance myths.
Myth #1: There's a universal database of life insurance policies that I can use to find my relative's policy number
Alas, if only it were true, we could bring an end to the scavenger hunts of thousands of beneficiaries who suspect policies exist but can't find them. This problem often starts with the insured person, who never fully divulges where the policy paperwork is kept. Beneficiaries can't make a claim without knowing at least the name of the life insurance company.
The closest thing out there is MIB Group's database of life insurance applications. If your relative applied for life insurance within the last seven years, MIB likely has a record of which life insurer took the application. While MIB uses its database to ferret out fraud, it also offers a policy locator service.
Myth #2: Anyone can take out a life insurance policy on you
Rest easy: Your friend, neighbor, sibling - even spouse - can't buy life insurance on you without your knowledge. The application process usually requires a medical exam - or at least your signature on papers.
The only way it might be possible: If your spouse's employer offers group life insurance for spouses and he or she signs you up for the benefit.
Myth #3: Life insurance companies look for ways to reject people
When we talk about buying life insurance, we often end up talking about medical conditions and other risks that can knock you out of the market. But life insurance companies want your business and will try to look for a way to sell you a policy!
"Some people think that insurance companies look for reasons not to provide coverage. Insurance companies look for reasons that they can cover people," reports Steven Brostoff of the American Council of Life Insurers (ACLI). "People with a wide range of medical conditions can still be eligible for coverage, depending on the insurance company's underwriting."
Myth #4: I have group life insurance through work so I'm all set
"Some people believe that the group life insurance they get through their employer is sufficient, and that's often not true," says Brostoff. "It depends on your individual circumstances, the size of your family and your expenses. You need to talk to a financial advisor to see what your needs are."
Myth #5: A life insurance application rejection means you're uninsurable
Life insurance companies may seem like an unpredictable lot - unless you're an agent who deals with them all the time.
"Just because you've been rejected by one insurer doesn't mean that another insurer won't offer you coverage. You shouldn't quit," advises Brostoff. "Another company may offer coverage."
Marvin Feldman, President and CEO of the LIFE Foundation, says, "A trained professional agent will have relationships with 'surplus' and 'substandard' underwriters. . . . They will send your information to shop the marketplace."
Myth #6: My spouse is still young and can go back to work if I die
"If you haven't been in the workforce, in this economy, the ability to go out and earn livable income isn't realistic," says Feldman. "If you don't have a minimum amount of life insurance [and you pass away], now you have [a spouse] who has to rely on friends and relatives, and that's not where you want your family to be. Even if your spouse can go back to work, won't happen in a few days. Life insurance gives you time."
Myth #7: The government will take care of my family"
This is a serious misconception," says Feldman. "They think Social Security will take care of them."
Myth #8: You can't change your life insurance rate after you buy the policy
If your health has improved substantially since your policy purchase, you might wish you had waited to buy in order to get low cost life insurance. But you can ask your life insurance company for a rate re-evaluation. And if your life insurance company won't lower your rate, you can still shop for a new policy at a better price and then drop your old one.