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How do I Choose a Life Insurance Policy?

Your life insurance agent can recommend a life insurance policy that he or she thinks will meet your needs. Be sure that it fits your personal goals. An agent should provide a "policy illustration" that shows how it will work.

Carefully study your agent's recommendation and ask for a point-by-point explanation. Make sure the agent explains items you don't understand. Because your policy is a legal document, it is important that you know what it provides.

If your agent recommends term life, ask:

How long can I keep the life insurance policy? If I want the option to renew for a specific number of years or until a certain age, what are the terms of renewal?
When will my premiums increase? Annually? Or after a longer period of time, such as five or 10 years? Can I convert to a permanent policy? Will I need a medical exam when I convert?

If your agent recommends a permanent life policy, ask:

Are the premiums within my budget?
Can I commit to these premiums over the long term?
How much will I receive if I surrender the policy?

Keep in mind that permanent life insurance provides protection for your entire life. If you don't plan to keep it for many years, consider another type. Cashing in a permanent life insurance policy after only a few years can be a costly way to get short-term insurance protection.

What does my life insurance policy illustration show?

An illustration shows premiums, death benefits, cash values, and information about other factors that may affect your costs.

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. Dividends and credits are not guaranteed. Your costs or benefits could be higher or lower than those in the illustration, 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. However, when figures are guaranteed, the insurance company will honor them regardless of its financial success. Ask your agent which figures are guaranteed and which are not.

If the illustration is for a variable life insurance policy, be sure that the interest rate assumed is reasonable for the underlying investment accounts to which you would allocate premiums. For example, a higher interest rate may be warranted if you select a stock account, while a lower rate should be assumed for more conservative alternatives.

Is a life insurance policy illustration a legal document, like a contract?

No, an illustration is not a legal document. Legal obligations are spelled out in the policy itself.

What else should I look for in an illustration?

Is it based on recent experience?
Is the classification shown appropriate for me (i.e., smoker/nonsmoker, male/female)?
When are premiums due -- annually, monthly or otherwise?
Which amounts are guaranteed and which are not?
Will I be notified if the non-guaranteed amounts change?
Does it have a guaranteed death benefit, or could the death benefit change depending on interest rates or other factors?
Does it pay dividends or provide for interest credits? Are those figures incorporated into the illustration?
Will my premiums always be the same? Could the premium increase significantly if future interest rates are lower than the illustration assumes?
If the illustration shows that I will not have to make premium payments after a certain period of time, is there any chance I would have to resume payments in the future?
Is the premium level sufficient to guarantee protection for my entire life?

Here are a few tips to keep in mind about your life insurance purchase:

Take your time. On one hand, don't put off an important decision that would provide protection for your family. Make sure you fully understand any life insurance policy you are considering and that you are comfortable with the company, agent and product.
When you purchase a policy, make your check payable to the life insurance company, not to the agent. Be sure to get a receipt.
After you have purchased a life insurance policy, keep in mind that you may have a "free-look" period -- usually 10 days after you receive it -- during which you can change your mind. During that period, read your policy carefully. If you decide not to keep it, the company will cancel it and give you an appropriate refund.
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 a decision. Surrendering your policy to buy another could be very costly.
If you have a complaint about your life insurance agent or company, contact the customer service division of your life insurance company. If you are still dissatisfied, contact your state insurance department. Most departments have a consumer affairs division that can offer help, and some have a toll-free number to respond to consumer requests.
Review your policy periodically or when your situation changes to be sure your coverage is adequate.

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