A lot has changed over the past 30 some years in life insurance. Products have been invented and disposed of. Bells and whistles have been implemented and some of them have been disposed of. With a few notable exceptions though, the basic term life insurance policy hasn’t changed much.
When’s the last time you had a discussion with your life insurance agent about the options available to you in your term insurance policy? OK. Let me shorten that. When’s the last time you had a discussion with your life insurance agent? OK! Do you have any idea how to find your life insurance agent? All righty then. Did your life insurance agent take the time to go over the important clauses and options available to you when they dropped the policy off? Hmmm!
The truth is that most life insurance agents (not that they ever earned the title) don’t stay in touch with clients any more than that person that sold you your last Happy Meal stays in touch with you. You were just a sale and they figure you know all you need to know. If you die someone files a claim and they get a death benefit! Here’s a quick quiz. If your agent reviewed your policy with you, and continues to review it on an annual basis, there should be no problem scoring 100%.
1. How many days is your grace period?
2. How much is your premium and how many more years is it guaranteed to remain level?
3. If you were terminally ill, what percentage of the death benefit could be accessed before your death?
4. At this point will your policy pay if you take your own life?
5. If you’ve taken up a “dangerous hobby” since you took out your life insurance, are you covered if you die participating in that hobby?
6. If I let my policy lapse, can I get it back?
7. If you quit smoking can you get your premium lowered?
8. Did you know that you can change payment modes from, for instance, annually to monthly?
9. Assuming you were comfortable with the amount and term length when you acquired the policy, are you still sure it meets your needs?
10. What is your conversion option? Has it changed since you took out your policy?
11. How can you ensure filing a claim is not a big deal? (Extra credit question)
Now it would be understandable that, even if your agent reviewed all of this with you when delivering the policy, you may not remember the answers. The problem is that there are a few moving parts in your policy and some insurance companies have used the ability to move those parts to disenfranchise (screw) you out of important benefits.
Fortunately that’s not true of very much in your policy, so let’s look at the answers and then, true to my style, I will go off on the life insurance company when I get to the disenfranchisement.
1. Your grace period is 30 or 31 days depending on state law. Your policy remains fully in force during that period. If you die your beneficiary will receive the death benefit minus the premium that was due.
2. You probably know your premium the way we all know bills, at least approximately. What most of you don’t keep track of is how many more years your policy will remain level. If your agent doesn’t stay in touch at least once a year you should consult the policy specification page to see when it started and when the level premium ends.
3. This is usually called the the accelerated benefit option. Depending on the company it allows you to take anywhere from 25% to 75% of the face amount of the policy prior to your death when you have been diagnosed terminally ill (usually less than a year to live). Whatever amount cannot be taken before death will be distributed to your beneficiary upon your death. There are not restrictions on how this money is used. ***This used to be accessible with all companies with a small administrative fee. Some companies are now treating it as a loan and deducting the interest from the remaining death benefit.***
4. If your policy has been in force for more than two years, one year in a few states, the policy will pay in full for death due to suicide.
5. Any dangerous change in lifestyle that was not anticipated at the time of the application is 100% covered. So, don’t buy a new policy just because you decide to skydive for your 50th birthday.
6. Especially relevant today with the economy. Most companies will allow you to reinstate for several months just by paying back premium. After that you have to apply to reinstate. If approved you still need to pay back premium. If your policy has lapsed over a year and your health is still good, consider just applying for a new policy.
7. You can apply for a change in rate based on how long you have been a non smoker. The most dramatic change will come if you took the policy out as a smoker and have not smoked or used tobacco or nicotine (nicorette gum) for 12 months. Takes you from smoking to non smoking rates. Huge! They may require a test to confirm no nicotine in your system.
8. Yes you can. Economic hard times have had several clients changing from annual to more frequent, smaller payment modes. Your agent, if you can still find them, can help. Otherwise call customer service. The number is in your policy.
9. Nothing like an agent staying in touch to help you with that question. I had a client call in last week who had inherited enough money that he wanted to cut his life insurance in half. It needs to be reviewed.
10. Now you really need an agent. ***Several companies have changed their conversion options to incredibly unfriendly, unfavorable, stinking rotten choices. If it was ever explained to you it may have changed with no notice from the company. This is an option you may never need and it is also an option that could save your family.***
11. Call your agent upon the death of the insured, if you still have one. If not, call the home office customer service number in the policy. If you can’t figure it out, call me.
Bottom line. Life insurance evolves and devolves and is a product that should be reviewed at least once a year. If you have any questions or don’t understand what your policy really says, call or email me directly. Let’s talk.