As an insurance advisor, I find that people are not familiar with the insurance they bought and the associated features. Below are the four most important questions to ask your insurance advisor before you make changes to your existing policy or sign on the dotted line on a new life insurance policy.
#1 – What type of insurance do I currently have?
Term Life Insurance – Lower cost, good for shorter period, renews at a higher rate and allows you to convert to Permanent Life Insurance.
Permanent Life Insurance – There are two types: Universal Life and Whole Life. These insurance plans are pricier, but the cost remains level and they allow you to build savings within the policy that can be used while you are alive. These policies have a coverage and investment component.
#2 – What if my health changes; is my Term Life Insurance convertible to Permanent Life Insurance?
Conversion options allow you to convert your policy from a Term Life policy into a Permanent Whole Life policy without having to do another medical exam. For example, a “term 10” policy would give the client 10 years to convert into a Permanent Life policy. Another option would be to renew and pay the higher premium for another 10 years, then convert again during this time frame. Conversion options differ from carrier to carrier and some carriers do not allow conversion. Life changes all the time; so, it is important to have the luxury of choice! Choose a policy with a conversion option.
#3 – What kind of options (also known as “riders”) are available with my policy?
Not all policies are equal, and cheaper doesn’t necessarily mean better. That is why using an insurance advisor can help match you with the right policy and coverage or your needs. Details your advisor should look for on your behalf include:
- Renewal Rates – saving a few cents a month when purchasing, but renewing at a price three-time higher, doesn’t make sense. Some carriers’ renewal rates are better than others.
- Conversion options – what are the terms and conditions to convert?
- Surrender fees – is there a cost to cancel the policy or withdraw money? In many cases, there is a cost to cancel Permanent Life Insurance policies. For example, a Universal Life policy may have a 7-year surrender charge, so if the client is accumulating money in their policy and cancels before 7 years, the client could lose a portion, or all, of the money in the side account, or lose their dividend paid in a Whole Life policy.
- What is guaranteed? For example, there could be a guaranteed level premium, guaranteed death benefit, guaranteed minimum cash value, and for Whole Life policies, a guaranteed renewable and convertible policy with no medical exam required.
- Percentage of claims paid. This question gets to the bottom of the provider’s history of paying out claims.
#4 – What is covered if I become ill or disabled?
Some life insurance policies provide benefits like critical Illness and “waiver of premium on disability” riders. Critical illness will pay a one-lump sum if you are critically ill and survive for 30 days. A “waiver on disability” will pay for your policy cost if you were to become disabled.
The definition and terms vary from carrier to carrier and policy to policy. It is always a good idea to combine more than one type of coverage on a policy because, just like buying in bulk, you’ll save money!