GETTING STARTED
After you have thought about your financial needs and have become familiar
with the basic types of life insurance, you will need to choose a company
and agent.
How do I choose a company?
More than 2,000 companies in the United States sell life insurance. While
some consumers prefer to buy policies directly from a company, most people
buy life insurance through agents or brokers. Much of the information provided
here will be helpful whichever way you decide to buy life insurance.
Before purchasing a policy, check the company's financial condition. You
can do this by asking the agent or requesting information from your state's
insurance department. A number of insurance rating services rate the financial
strength of companies. These ratings can be found in large public or business
libraries, or can be obtained directly from the rating service. There may
be a fee for that information.
Also check with the state insurance department to be sure the company is
licensed in your state.
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How do I choose an agent?
Collect the names of several agents through recommendations from friends,
family and other sources. The following are some questions you may want to
ask a potential agent:
Is the agent licensed in your state?
All states require that agents be licensed to sell life insurance. In addition,
agents who sell variable products must be registered with the National
Association of Securities Dealers and have additional state licenses.
What company or companies does the agent represent?
Does the agent have any professional designations?
Professional designations include Chartered Life Underwriter (CLU) and Life
Underwriting Training Council Fellow (LUTCF). Agents who also are financial
planners may have designations, such as Chartered Financial Consultant (ChFC),
Certified Financial Planner (CFP) or Member of The Registry of Financial
Planning Practitioners.
Is he or she a member of a professional association?
The major association for agents is The National Association of Life Underwriters
(NALU). Through NALU's local associations, agents can attend educational
seminars and can stay on top of trends in the business. Similar training
and services are provided to financial planners through the American Society
of CLU & ChFC, the Institute of Certified Financial Planners (ICFP),
and the International Association for Financial Planning (IAFP).
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What can I expect an agent to do for me?
An agent should be willing and able to explain various policies and other
insurance-related matters. Let your agent know what you expect from him or
her. You should feel satisfied that the agent is listening to you and looking
for ways to get you the right type and amount of insurance at an affordable
price. If you are not comfortable with the agent, or you aren't convinced
he or she is providing the service you want, find another agent.
THE AGENT VISIT
Now that you have reviewed the basics of life insurance and thought about
your personal financial needs, you can shop for a life insurance policy with
more confidence and knowledge.
What can I expect during an agent visit?
The agent you have selected will meet with you to discuss your life insurance
needs. He or she will ask questions about family income and your net worth.
Using the information you already have assembled about your financial situation,
you should be prepared to discuss your insurance options.
Will the agent ask questions about my health?
In this initial meeting, be prepared to answer questions about your health
(for example, age, medical condition, medical history, family history, personal
habits). It is important that you answer these questions carefully and
truthfully; this information helps a company charge a fair premium for your
coverage. For instance, you may pay a lower premium if you don't smoke. On
the other hand, if you have a chronic illness, you may be charged a higher
premium.
Also, in the event of a claim, accurate and truthful answers enable your
beneficiary to receive prompt payment. Inaccurate or untruthful answers,
however, may cause delay or even denial of a claim.
When you apply for life insurance, you may be asked to have a medical exam.
Often, a licensed medical professional will make a personal visit.
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YOUR AGENT'S RECOMMENDATION
Once you have discussed your financial needs and objectives with your agent,
he or she will recommend the type of life insurance policy that will best
suit your purposes. Often, the agent will provide a "policy illustration"
that will show how your policy will work.
Carefully study your agent's recommendation and ask for a point-by-point
explanation if there are items you don't understand. Because your policy
is a legal document, it's important that you know what it provides.
Here are some other questions you should ask:
Does this policy truly meet my needs?
If your agent recommends a term policy, consider the following:
If you want the option to renew the policy for a specific number of years
or until a certain age, ask your agent about the terms of renewal of the
contract.
Some policies allow you to convert the policy to permanent insurance without
a medical exam, regardless of your physical condition at the time of the
conversion. These policies are known as "convertible term."
If your agent recommends a permanent policy, consider the following:
Are the premiums within my budget?
Be sure you want to spend the money for this type of long-term coverage.
Can I commit to these premiums over the long term?
Make sure you know the amount you would receive if you surrender your policy.
Keep in mind that permanent insurance is designed to provide protection for
your entire life. If you don't plan to keep the product for many years, consider
another type of policy. Cashing in a permanent policy after only a couple
of years can be a costly way to get insurance protection for a short term.
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What does my policy illustration show?
An illustration shows policy premiums, death benefits, cash values and
information about other items that can affect your cost of obtaining insurance.
Some of the items listed in the illustration are used by the insurance company
to reduce your costs if its future financial results are favorable. Your
policy may provide for dividends to be paid to you as either cash or paid-up
insurance. Or it could provide for interest credits that could increase your
cash value and death benefit or reduce your premium. These items are not
guaranteed. Your costs or benefits could be higher or lower than those
illustrated, because they depend on the future financial results of the insurance
company. With variable life, your values will depend on the results of the
underlying portfolio of investments.
Ask your agent for an explanation of the illustration; some figures are
guaranteed and some are not. Remember that the insurance company will honor
the guaranteed figures regardless of its future financial experience.
If your policy is a variable life policy, be sure that the interest rate
assumed is reasonable for the underlying investment accounts to which you
choose to allocate your premiums. For example, some investment advisors suggest
that a higher interest rate assumption may be warrant-ed if you plan to allocate
your premium to a stock account, while a lower rate should be assumed for
more conservative alternatives.
It is important to keep in mind that an illustration is not a legal document.
Legal obligations are spelled out in the policy itself.
Here are additional questions to ask about the policy
illustration:
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Is it based on current experience?
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Is the classification shown in the illustration appropriate for me (i.e.,
smoker/non-smoker, male/female)?
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When are premiums due annually, monthly or otherwise?
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Which figures are guaranteed and which are not?
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Will I be notified if the non-guaranteed amounts change?
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Does the policy have a guaranteed death benefit, or could the death benefit
change depending on interest rates or other factors?
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Does the policy pay dividends or provide for interest credits?
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Are those figures incorporated into the illustration?
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Will my premiums always be the same?
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Is it possible that the premium will increase significantly if future interest
rates are lower than the illustration assumes?
If the illustration shows that, after a certain period of time, I will not
have to make premium payments, is there a chance I could have to begin making
payments again in the future? Is the premium level illustrated sufficient
to guarantee protection for my entire life?
What happens if I fail to make the required premium
payments?
If you miss a premium payment, you typically have a 30 or 31 day grace period
during which you can pay the premium with no interest charged. After that,
the company can with your authorization draw from a permanent policy's cash
value to keep that policy in force. In some flexible premium policies, premiums
may be reduced or skipped as long as sufficient cash values remain in the
policy. However, this will result in lower cash values.
What happens if I become disabled and can't pay the premiums
on my policy?
Provisions or riders that provide additional benefits can be added to a policy.
One such rider is a waiver of premium for disability. With this rider, if
you become totally disabled for a specified period of time, you do not have
to pay premiums for the duration of the disability.
Are other riders available?
Another rider, called an "accidental death benefit", provides for
an additional benefit in case of death as a result of an accident.
A relatively new rider offered by some companies provides "accelerated
benefits," also known as "living benefits." This rider allows
you, under certain circumstances, to receive the proceeds of your life insurance
policy before you die. Such circumstances include terminal or catastrophic
illness, the need for long-term care or confinement to a nursing home.
Ask your agent for information about these and other policy riders.
When will the policy be in effect?
f you decide to purchase the policy, find out when the insurance becomes
effective. This could be different from the date the company issues the policy.
Is a "Buyer's Guide" available?
Most state insurance departments require companies to provide consumers with
a buyer's guide to help them understand life insurance terms, benefits and
costs. Ask your agent for a copy.
FINAL TIPS
Here are a few tips to keep in mind about your life insurance purchase: Take
your time. On the other hand, don't put off an important decision that would
protect your family. Make sure you fully understand any policy you are
considering and that you are comfortable with the company, agent and product.
Don't rush into a decision just because you are feeling pressured. When you
purchase a policy, make your check payable to the insurance company, not
to the agent. Be sure you are given a receipt. After you have purchased an
insurance policy, keep in mind that you may have a "free-look" period
usually 10 days after you receive the policy during which you can change
your mind. During that period, read your policy carefully. If you decide
not to keep the policy, the company will cancel the policy and give you an
appropriate refund. Ask your agent. Review the copy of your application contained
in your policy. Promptly notify your agent or company of any errors or missing
information. If an agent or company contacts you and wants you to cancel
your current policy to buy a new one, contact your original agent or company
before making any decisions. Surrendering your policy to buy another could
be very costly to you.
If you have a complaint about your insurance agent or company, contact the
customer service division of your insurance company.
If you still are dissatisfied, contact your state insurance department. Most
departments have a consumer affairs division that can offer help.Review your
policy periodically or when your situation changes to be sure your coverage
is adequate.
OTHER RESOURCES
Where else can I get information about insurance?
Your personal insurance agent and company are good sources of general information
about insurance. Contact the National Insurance Consumer Helpline (NICH) at
1-800-942-4242. NICH is a toll-free consumer information telephone service
sponsored by insurance industry trade associations. Look in your local library
for magazines or books on insurance or personal finance. The consumer affairs
division of your state insurance department can provide useful information.
Some departments have toll-free numbers to respond to consumer questions.
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