Over the next three posts I will be opening up an actual in force term life insurance policy in an effort to do away with the “fine print” myth that I mentioned in a previous post, and also to generally educate you about the guts of a policy. There are no sample policies in our business, so it helps to have an idea what is coming once it is approved. The good news is that unless your agent is shady and unscrupulous, you shouldn’t have laid out any money until you’ve had a chance to look over your approved policy.
I’ve broken the policy into three parts. The first part of the policy is the cover of the contract signed by the president of the company, the table of contents and a policy schedule. The following attachment comes from a policy that is in force on me.
These four pages spell out the outline of the contract to insure my life. It starts out by spelling out the fact that I have a right to examine the policy. In this case Banner Life is giving me 30 days to review the policy and return it if I choose not to accept it. It goes on to say that they will pay the Face Amount (the death benefit) if I die while the policy is in force.
It then goes on to say “Read Your Policy Carefully”. A life insurance policy is a legal contract between you and the insurance company, and obviously you should review it before binding the contract by paying the first payment. Being a legal contract they then become redundiferous and repeat that they will pay the face amount to my wife if I die while the policy is in force. It mentions that the policy is issued in consideration of the application and the payment of the first premium. “A copy of the application is attached and made a part of this policy.” That’s important. With the application being in the policy at the home office and in your policy, there can never be any disagreement about what was on the application. The application is also the only place in the policy where the beneficiary is designated.
At the bottom of the first page it spells out some features of the policy, a renewable and convertible term life insurance policy. We will cover these in the next post, but it lays out that there is a change of premium provision, the face amount is payable at death as long as the policy is in force (re-redundiferous), the fact that non-level premiums are shown after the guaranteed level premium period, the policy is renewable to the expiration date, convertible to the end of the conversion period and finally that the policy is non-participating which simply means that there are no dividends payable.
Page 2 is the table of contents. I trust that no definition is needed. Again at the bottom of the page, just in case you missed it on the first page it reminds me to “Please read my policy carefully”.
Pages 3 and 4 are the policy schedule. It spells out the type of coverage, the expiration date, the face amount, premium and the rate class. I want everyone to please note that I didn’t get the best rate class even though in my eyes I am perfectly healthy. The policy is in force. I shopped it once it was in force and didn’t find a better deal. Please note that there is an annual policy fee. This fee is included in every policy and is not an extra charge added on to the premium you were quoted. When you receive a quote the fee is included.
The next part talks about the premium, and especially important to note, the maximum annual premium. I’ve received many phone calls when people read the first part of the next line and don’t bother to read the last part or look further to see what it means. “Premiums may be changed” is as far as a lot of folks make it and they call before they ever see the part that says “premium will not exceed the maximum annual premium shown”. Hold that thought to the next page.
It then notes the end of the conversion period and the end of the exchange period. Both of those will be covered in another post. At the bottom some important specifics of the policy like who is insured, how long the level term period is, the issue and policy date and the policy number, which I whited out so none of you would kill me and call the company trying to collect before my wife could.
The next page is the schedule of maximum premiums. Note that the first 20 years have a guaranteed maximum that remains level. Starting in year 21 my wife is under orders to make it look like an accident if I start to write a check. It’s important to note that the premiums in year 21 and after don’t really reflect what life insurance should cost at that age. It does reflect that the company only guaranteed it to remain level for 20 years and that, not having underwritten the policy for a longer period, this is the price at which they will continue the contract.
Bottom line. Is it boring? Pretty much so, but worth the hour or so you will need to read it front to back. “Please read your policy carefully”.