Adverts with fancy wording that claim to offer millions of dollars worth of protection for your family for peanuts are a common sight. They do attract more than their fair share of attention and clients. But then if something sounds too good to be true, it probably is. Taking advantage of a good deal is quite different from blindly signing up only because the premiums are unbelievably low. There are typical issues involved with understanding a life insurance policy and the value that it is able to offer to you as a client. So what are some of the important factors you should analyze and know about before you sign on the dotted line? Here are some important features that you should ask about:
- Why are you investing in a life insurance policy?
- What kinds of policies are available to choose from?
- What is the monthly premium payable and for how many years do you have to pay this amount?
- What happens to the amount if you continue to live?
- Is there a limit to the number of beneficiaries you could name?
- What are the options if you want to convert your policy?
- Which company will give me the best value for my money?
- Through online tools that help you locate a good insurance provider.
- By hiring the services of a professional insurance agent.
- By talking to friends and relatives who have invested in similar policies.
- By examining the history and financial stability of the life insurance provider.
- What does my insurance include?
- What are my investment options through my policy?
- What happens if I cannot make a monthly payment?
If your answer is that you wish to protect your family- that’s not enough data. What are your present financial obligations? Are there immediate financial obligations which need liquid cash? You might want to consider term insurance policies. Do you look forward to purchasing a policy that doubles up as a savings plan? Or are your financial commitments long standing and more permanent in nature? In that case you might want to consider permanent insurance. These questions do not have a simple answer. It helps to sit down and write down your reasons for wanting to invest in life insurance in the first place. This will help identify the policies which fit your bill of expectations.
The most popular form of insurance that people like to invest in is group insurance policies normally offered at the workplace. The rates offered are better than individual rates and most of these plans do offer comprehensive coverage for the family. Other policies include whole life (fixed term payments), term life insurance (you can renew this every time the ‘term’ period expires), universal life and variable life which allow the client to shuffle his investment between the insurance component and savings component of his policy.
Out of these make sure you know which one you are signing on for.
The monthly deductible will be calculated based on several factors like the final amount you wish to be given as endowment, your affordability and the nature of the policy. You might want to remember that different companies may offer very different policies for the same coverage. A lower monthly deductible will mean you will be paying out on your policy for a longer time period.
Most life insurance policies offer savings options to the client. He can either choose to reinvest this amount back in the policy or may choose to withdraw it at the end of the term. There could be several scenarios here. You might want to let the old policy expire and go in for a new one (this may be expensive), or you may like to renew the policy for another ‘term’ (if you’re on term life), or the company might offer to upgrade your old policy. Life insurance policies which offer a mix of savings and protection are better bets when you manage to outlive your policy.
A policy should typically allow you to name as many beneficiaries with the portions decided by you. You might like to reconfirm this with the insurance agent who you are consulting with. Keep copies of all documents related to your policy. Ask about what happen if any beneficiary of your policy dies before the policy is redeemed.
You might consider converting to a different policy if you need more coverage, if you have outlived your term or you wish to convert to one which offers more investment options. This is one issue that has a wide spectrum of alternatives which are company specific. Some companies offer very flexible options to switch from term insurance to permanent life, some allow conversions to particular policies only. Many companies offer limited options after 70. This is something you should get compete clarification on before you sign any documents.
There are several ways to examine your options.
Check different companies for the same set of requirements- this will make a comparison between them more informative.
Many companies will demand higher premiums if you have life risking hobbies such as deep sea diving, or parasailing or sky-diving. Read very clearly and ask incisive questions about all that is covered and more importantly about what is not covered. Remember you don’t want your family to be saddled with your erroneous understanding of small print.
Every life insurance company has policies which work as a savings platform for you. See exactly what kind of returns you’re looking at and the tax plications on those returns. Some companies are reputed to make good money for their investors so look for those.
This is one very important question to ask before signing on. Most companies have a penalty or fine you will need to pay, and this amount varies depending on the amount you missed paying and the total policy amount. Find out what happens if you default on a payment due to financial compulsions.
