The Fine Print Explained
After purchasing your life insurance policy and having it approved you finally get the document in your hand.
Take some time to read it in order to get a true understanding of the document you hold in your hand.
I beg of you not to put your life insurance policy away for safe keeping until you have examined every last phrase in the contract itself…
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Life Insurance Policy Explained
Let us now examine the mechanics of a life insurance policy. This is an example of what is usually included in your policy. The actual explanations will differ somewhat from company to company.
In the first section of the policy you are given you a brief description of the benefits included therein.
- How much the life insurance policy is for; that is, how much is payable on death.
- The type of policy and name of the plan purchased. You know, whether it is a whole life policy, term policy, variable life policy etc.
- The name of the insured. That is the person whose life is insured.
- Any additional benefits or riders, such as waiver of premium in case of disability…or the accidental death benefit rider sometimes referred to as “double indemnity” by which twice the face amount of the policy would be paid if the insured died in an accident of any type.
- The age of the insured. A life insurance company takes into consideration age, health and occupation when underwriting a life insurance policy. Usually the older a person is the more a life insurance policy costs.
- The policy number. This is important. You or your beneficiaries will refer to this number when dealing with the life insurance company.
- Also listed here is whether the policy is issued preferred, standard or rated…that is when you are charged an extra premium because of your health, occupation or avocation.
- The number of years the policy is issued for. e.g. 10 years, 20 years, or for life.
- Here they show the annual premium. Although all premium calculations are initially made on an annual basis, the insured may pay the premium semi annually, quarterly or monthly.
- The number of years the policy is payable. A life insurance policy may be issued for life but the premium payer may only have to pay premiums for say 10 years. This is known as a limited pay life policy.
- The date of issue. This is the date the life insurance policy goes into effect.
- The incontestable period and contestable period. Let us assume you applied for a life insurance policy and lied on the application that you never had cancer. However, through a report from the Medical Information Bureau the insurance company discovers that you were diagnosed with melanoma 2 months ago, they can withdraw the policy, and refund your money. If, however, they discovered this after the contestable period had expired, they could not take the policy away from you. Contestable period is usually 1 year.
- Suicide clause. If a person plans to buy a policy and then commit suicide, they should forget about it. Although insurance companies pay benefits if a person commits suicide, they give you a long time to think about it. Written in the suicide clause is a waiting period of one or two years. In other words don’t go and buy a policy with the intent of committing suicide. Your family will receive nothing.
- Definition of dates. Here it is explained that the suicide period and contestable period begin at the date the policy was issued. Policy dates are stated in this policy itself.
- Misstatement of age. If the insured miss-states his or her age on the application for the policy the amount of insurance shall be whatever insurance the premium paid would purchase had the correct age been given.
This section describes the rights of the owner of the policy.
- The owner may exercise all rights of the policy without the consent of the beneficiary.
- The owner may assign the policy as collateral for a loan.
- The owner also has the right to transfer ownership of the policy to another person. Satisfactory written proof of such a transfer must be given to the company.
This section describes…
- How premiums should be paid.
- The grace period for premium payments – usually 30 days.
- The refund of unused premium at death. Let us suppose you paid your premium for the entire year. If you died one month after paying the life insurance would pay the proportionate balance to your beneficiary together with the face amount of the policy.
- Should the policy lapse how it can be reinstated. You can reinstate by paying the back premiums or re-dating the policy. You may need to prove you are insurable to effect reinstatement.
Here you receive an explanation of…
- What life insurance policy dividends are and how they accrue. Dividends are applied to a permanent life policy if the company does well.
- How dividends can be used.
- What paid up additions are. They are tiny single premium policies
This section usually clearly explains…
- Cash values. Permanent policies have guaranteed cash values.
- Extended term insurance. The period of time your policy will remain in force if you stop paying. The full face amount will be in force here.
- Paid up insurance. A reduced amount of insurance can be chosen. In this case the paid up policy will remain in force until maturity.
- Here they also show the cash surrender value of a policy.
- There is also description of what happens if premiums are not paid.
- An explanation of how the company determines cash values.
This section discusses policy loans.
- What is a policy loan?
- How can you get a loan on your policy?
- What effect will a loan have on the life insurance policy?
- What is the interest rate charged by the insurance company on such a policy loan?
- Here you learn that you can change your policy to another type of plan within certain limitations. Even the insured can be changed with evidence of insurability.
This section describes the term beneficiary.
- How to change your beneficiary any time in the future if you should desire to do so.
- Here is also described the marital deduction provision for the spouse of the insured and the succession in interest of beneficiaries, e.g primary beneficiary and contingent beneficiary.
Section 9 describes payment of policy benefits. For example:
- Payment at surrender of the policy.
- Payment at the maturity of the policy.
- Payment at death.
- Payment plans of policy proceeds.
- Right to increase income under payment plans.
- Guaranteed payment tables.
This section describes fully any additional benefits applied for.
- The waiver of premium benefit is covered in this section.
- The accidental death benefit rider is explained.
- Here you will find a copy of the application, which is also a part of the policy.
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