Examining a policy

How do I know if a life insurance policy is right for me?

Read the policy carefully to make sure it meets your personal goals. Because your policy is a legal document, it’s important that you understand exactly what it provides. Ask for a point-by-point explanation for anything that is unclear and make sure the agent explains items you don’t understand.

If your agent recommends a cash value policy, ask:

• Are the premiums within my budget?
• Can I commit to these premiums over the long term?

Cash value insurance provides protection for your entire life. Cancelling a cash value policy after only a few years can be a costly way to get short-term insurance protection. If you don’t plan to keep the policy for the long-term, consider another kind of coverage such as term insurance.

If you’re considering a term policy, ask:

• How long can I keep this policy? If I want to renew it for a specific number of years, or until a certain age, what are the renewal terms?
• Will my premiums increase? If so, will increases start annually or after five or 10 years?
• Can I convert to a cash value policy? Will I need a medical exam if and when I convert?
• If it has a return of premium benefit, ask: What would the policy cost without this benefit? Will all of the premiums be refunded?

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

A policy illustration is not part of the life insurance policy and is not a legal document. Legal obligations are spelled out in the policy contract. A policy illustration, however, can help you understand how a policy works.

What is in a policy illustration?

A policy illustration shows financial projections for each year you own the policy—including, but not limited to, premium amounts owed, cash values, and death benefits. For a term policy, the projections extend to the end of the term. With a cash value policy, projections extend past your 100th birthday.

Your actual costs and benefits could be higher or lower than those in the illustration because they depend on the future financial results of the insurance company. 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.

A policy illustration can be complicated. Your agent or financial advisor can explain information you don’t understand.

What should I look for in a policy illustration?

Study the policy illustration to answer the following:

• Is my classification (i.e., smoker/nonsmoker, male/ female) correct?
• When are premiums due—monthly, annually, or according to some other schedule?
• What amounts are guaranteed and which are not?
• Does the policy have a guaranteed death benefit or could the death benefit change depending on interest rates or other factors?
• Does the policy offer dividends or interest credits that could increase my cash value and death benefit or reduce my premium?
• Will my premiums always be the same? Could premiums increase if future interest rates or investment returns are lower than the illustration assumes?
• If the illustration shows that I won’t have to make premium payments after a certain period of time, is there any chance I would have to start making payments again at any time in the future? ( pueblo.gsa.gov )
  

( http://www.pueblo.gsa.gov/ )