You may be at a place in your life where you know having life insurance is important and needed. A friend or co-worker may recommend a licensed life insurance agent, or perhaps, you searched for one on the internet. There are so many choices. Where do you begin? How do you know what the right insurance plan is for you, and how much should you budget for those payments called premiums?
One of the most important elements of buying a life insurance policy is to find a company that is reputable, financially stable, and will give you the best product for your money.
If you are new to facts about life insurance, it’s important to know what types of life insurance policies are offered:
There are two main types of life insurance: Whole Life and Term Life.
- Whole life insurance is designed to last the duration of your whole life. Typically, premiums are paid each month. Upon your death, your beneficiary will receive their designated benefit amounts. Whole life insurance policies also build up cash value. Loans may be taken out against accrued cash value; these loans can be used in a variety of manners including unexpected issues that may arise in your life. Be sure to repay the loan or replace the withdrawn funds, or the death benefit will diminish in value.
- Term life insurance, unlike whole life, typically has an expiration date. The insurance policy lasts for a specified term or period of time. When that term expires, the policy expires. Term life premiums are typically lower than those of whole life insurance, and the policy does not build up cash value.
- When you are ready to buy an insurance policy, make sure you take the time to go over any or all of the following with a licensed insurance agent, a licensed financial planner, or an estate lawyer:
- Restrictions - There may be restrictions on the insurance policy.
- Benefit format - How will the benefit be dispersed to your beneficiaries upon your death?
Any fine print - Read the fine print! You want to fully understand the policy.
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Important points to take into consideration are a company’s financial strength, reputability, and customer service.
Listed below are seven issues you want to avoid when purchasing a life insurance policy.
1. There is a mistake on your application or policy.
Answer application questions honestly and read over all answers carefully to avoid any mistakes. Most policies can be rescinded during the first two years if there is misrepresentation on the application that would have caused the policy to be denied in the first place. Mistakes can be minor, such as a wrong address for a beneficiary. Be sure and check your policy when you receive it. Also, do an annual check on items such as beneficiary’s current information, including their address.
Basic contact info – Errors in basic contact information could prevent or delay your loved ones from receiving critically needed financial help when they need it most.
2. You have the wrong coverage.
You assumed you were buying one type of policy or amount of coverage when you’ve actually purchased something different.
Take the time when you meet with a licensed insurance agent. Come prepared with your budget, social security numbers for you and your dependents, and other necessary information.
If you don’t understand something about the life insurance policy, don’t hesitate to ask the agent during or after meeting with him or her. This is your financial protection for your beneficiaries. A well informed and professional agent will work with you through the application process.
3. Your premium increases.
Your age and health conditions may affect the premium rates. The economic landscape of where you live may affect term life premiums. Whole life insurance premiums remain constant the life of the policy.
4. You shopped based on price, not the company.
If you purchased life insurance exclusively because of the price, you may want to reconsider. That deal may not be such a benefit in the long run. Important points to take into consideration are a company’s financial strength, reputability, and customer service.
Reputability and Financial Strength of Life Insurance Company
Finding a reputable life insurance is important. Questions to ask:
- How long have they been in business?
- View the company's financials. The information is usually found on their website.
- Look at independent resources that rate the life insurance company: NAIC, S & P Global, and A.M. Best.
- Where does the insurance company rank with in-force life insurance policies?
- Read about the insurance company and their reviews.
Take note of your experience with the insurance company from the moment you come in contact with a representative. This includes customer service, the life insurance agent, and how easily it is to find information or forms you need. Is it easy to access a form, and if you need help, is there service to assist you?
Claims Filing Process – Is the claim process easy to find? Is it easy to file? And does the company have customer service that can assist you?
5. You've lapsed in your premium payment resulting in loss of coverage.
Lapsing in premium can leave you with no coverage and wasted dollars. Most life insurance policies allow a period of time for a late premium payment, called a grace period. It is usually a 30-31 day period after your premium’s due date. With term life insurance, after the grace period, the policy lapses.
6. You have an unsuitable beneficiary.
When you select a beneficiary, it can be a person or persons, a trust, a business, or non-profit organization. Designating an adult beneficiary is normally straightforward and uncomplicated. If you choose a minor, explore available options such as setting up a trust or a guardian because the benefit cannot be given directly to a minor. Speak with a financial planner or estate lawyer.
7. You have not reviewed and updated your policy.
Life grows with you. A bigger house or more children means you have more at stake, which means you should have more coverage. Annual reviews of your life insurance coverage is important, as life changes and you may need to update your policy.
Maybe a policy was taken out for an individual before they had a family, resulting in only enough for final expenses. As your life situation changes, there is need for more life insurance coverage on your beneficiaries. In some life insurance policies, you can also sign up for riders. This is the ability to add life insurance coverage for your spouse and children.
Life insurance can help provide for your family if something were to happen to you. Make sure the precaution you’ve taken doesn’t fall prey to these common mistakes.
Fill out the form or contact customer service if you’d like a licensed insurance agent to reach out to you.