All life insurance policies have one thing in common: they are designed to pay money to “designated beneficiaries” when you die. beneficiaries can be one or more individuals or even an organization.
In most cases, policies are purchased by the person whose life is insured. however, life insurance policies may be purchased by spouses or by anyone who can show that they have an insurable interest in the person. If you buy life insurance on someone else (a spouse, for example), the policy pays when that person dies.
There are many different types of life insurance policies, you should choose a policy with features that fit your individual needs. Based on its unique characteristics, it is possible to identify several different types of life insurance coverage. however, they are divided into two classes of life insurance products: term and cash value policies.
term life insurance: is a policy that is purchased for a period of time (a term). The policy pays money to designated beneficiaries if the insured dies during the term. term life insurance is intended to provide lower-cost coverage for a specified period.
Term life policies may include a provision that allows coverage to continue (renew) at the end of the term, even if your health status has changed. however, those premiums may be higher than the original policy. ask what the premiums will be before you renew. Also, ask if you lose the right to renew at a certain age. If the policy is non-renewable, you will need to apply for coverage at the end of the term.
A cash value life insurance policy is different because you can keep it for as long as you need it. These policies also have savings or investment features, making it possible for policy owners to get money from the policy while they are still alive. Whole life, universal life, and variable life are types of cash value policies.
Everyone’s financial situation is different. First, decide if life insurance is necessary. if so, here are some questions to ask.
- How much of the family income do I provide?
- Will these financial obligations change over time?
- Knowing that the risk of death increases each year, in how many years do you anticipate needing death benefits?
- Do I pay the premiums on a set schedule?
- Does the policy have a cash value?
- Do policy values change from year to year?
- what part of the premium or the value of the policy is not guaranteed?
- Are there guaranteed minimums in my policy?
ask the agent:
things you should know
If you already have life insurance, it’s important to compare your current policy with any new policies you may be considering. Also, keep in mind that any change in your health may affect your ability to get a new policy or the premium you’ll pay. don’t cancel a current policy until you get a new one.
Before you buy a life insurance policy, make sure you can afford the premium. Premiums on many life insurance policies are sensitive to changes in investment earnings, claims costs, and other company expenses. be sure to ask what the highest premium might be to keep your coverage.
Does your policy have a cash value? In some cash value policies, values are low in the early years but increase later. in other policies, values gradually accumulate over time. Ask your insurance agent, financial advisor, or insurance company representative for an illustration showing future values and benefits. most term policies have no cash value.
key points to remember
1. Make sure you understand how your policy works and have a clear understanding of the payments.
2. it is important to fill out the application honestly. insurance companies will verify your answers, so review the application before you sign it. As with any insurance product, any false statement on the application could reduce or cancel your coverage.
3. Please read your policy carefully to make sure your personal information is correct and that you have included the Social Security or Tax ID number of all beneficiaries.
4. insurance companies will not pay a minor. instead, consider leaving the money to an estate or trust.
Learn More: For more detailed information on life insurance, get a copy of the naic life insurance buyers guide.