Life insurance can be one of the most important decisions that a family will ever make. However, understanding a life insurance policy can be a difficult and daunting task for many. Certain subtleties may not be spelled out and others may be subject to interpretation. In addition to this, life insurance needs will depend on the applicant´s personal situation, the amount of dependents they have and the applicant´s contribution to the family income.
Make Sure Your Policy is With a Top Rated Company!
Check online at “A.M. Best Rating” for a specific insurance company to find their current rating and status. They are rated based on integrity, liquidity, reinsurance programs, capital, investments, operating leverage, earnings and overall experience. Make sure that the company you use has a A++ rating! Here is a list of the possible ratings:
|A++, A+ (Superior)||B, B- (Fair)|
|A, A- (Excellent)||C++, C+ (Marginal)|
|B++, B+ (Good)||C, C- (Weak)|
|E (Under Regulatory Supervision)|
|F (In Liquidation)|
Evaluating a Life Insurance Policy
When reading a life insurance policy, the primary components are the term period, the death benefit and the premium. If it is term life insurance, the insurance policy will be for a specified number of years and the policy premium will vary depending on the age and (possibly) health of the policy holder. Guaranteed renewal ensures that the policy will continue with no additional health checks during the policy period. In a whole life insurance policy, assumptions, guarantees and projections should also be examined, as these may affect the cost of the coverage. Be sure to examine any exclusions that could affect coverage as well.
Terms to Understand
Insurance policy terms are important to understand as they directly affect the coverage. A surrender charge is the amount the company will charge if a policy is terminated. Cash value projections show if the cash value is enough to cover the policy in the future based on a guaranteed and a projected rate of return. Dividends are the projected income of the policy. Lastly, mortality assumptions are the statistical analysis used to determine the risk of the policy holder dying while the policy is in place. Different insurance companies use different rankings to determine the mortality assumption and these will affect the price of the policy. If you are ever unsure of a term, speak with the insurance company for clarification and they will be pleased to explain it.
Confirming Life Insurance Policy Data
Perhaps the most crucial part of understanding your life insurance policy involves examining it to make sure that all of the information is accurate. Locate the basic information and make sure that all personal data is correct. Confirm the beneficiaries and that your address and date of birth are right. Review premium payments and decide if the death benefits provide the coverage you need and make sure the policy reflects what you were quoted during the application process. Most states offer a ten day cancellation policy, so be sure to read the documentation within that time frame to ensure there is no dispute.
Because life insurance is important for protecting your loved ones from a financial crisis in the event of your death, understanding the life insurance policy is necessary. Knowing where to find the information on the policy and understanding it, ensures the right coverage at the best price. Be sure to ask the insurance company or the insurance agent questions if you cannot find the information you need in the policy. While life insurance can be a very complex product and dealing with the possibility of death can be a difficult proposition, understanding the policy can help bring peace of mind to individuals and their families.