Insurance World

If you are considering purchasing life insurance, an overview of the available types should prove helpful. This article will briefly discuss the difference between whole and term life insurance, as well as some variations on whole life insurance.

The easiest way to understand the difference between whole life insurance and term life insurance is to look at what is meant by their names. When you purchase whole life insurance, you are covering your “whole” life - as long as you own the policy, it will pay a benefit when you die. What that benefit is depends on the value of the policy at the time of your death, but you own the policy even if you are no longer making payments on it. Whole life also accumulates a cash value on a tax-deferred basis. In addition, whole life can pay dividends throughout the life of the policy.

Term life insurance, on the other hand, is purchased for a certain term, or period. As long as you die within that period, term life insurance will pay an agreed upon amount to your beneficiaries. It will not pay if you cease to make payments or if you die after the term has expired. In addition, term life insurance has no cash value.

Two other aspects of whole versus term life insurance should be pointed out. The first aspect is that premiums for whole life insurance are higher to begin with, but remain steady over time. On the other hand, premiums for term life insurance are lower near the beginning of the policy, but increase over time. Another aspect is that you can borrow against the cash value of a whole life insurance policy. This is not possible with term life insurance, since it does not have a cash value. There are two variations of whole life insurance that need to be mentioned. The first is a more flexible form of whole life called universal life insurance. With universal life insurance, you can adjust (within certain limits) the premiums as well as the benefit amount over time to suit your financial situation. This is made possible by placing the premiums in a fund that accumulates based on the interest rate. As with normal whole life insurance, this type of policy has a cash value that can be borrowed against.

The second variation on whole life insurance is called variable life insurance. This type is similar to universal life insurance, except that the premiums in the fund are tied to the financial markets rather than to interest rates. While the potential for growth is greater with this type of insurance, the potential for loss is greater as well.

As you can see, there are some choices to be made when considering the purchase of a life insurance policy. Now would be a good time to use some of the other resources at this site to help you decide on the life insurance policy that is right for you and your family.

Prohibited Marketing Practices. It is unlawful for a company or agent to use high pressure tactics to force or frighten you into buying a Medigap policy, or to make fraudulent or misleading comparisons to get you to switch from one company or policy to another. Deceptive “cold lead” advertising also is prohibited. This lactic involves mailings to identify individuals who might be interested in buying insurance. If you fill in and return the card enclosed in the mailing, the card may be sold to an insurance agent who will try to sell you a policy.

Check Your Right to Renew. States now require that Medigap policies be guaranteed renewable. This means that the company can refuse to renew your policy only if you do not pay the premiums or you made material misrepresentations on the application. Beware of older policies that let the company refuse to renew on an individual basis. These policies provide the least permanent coverage. Even though your policy may be guaranteed renewable the company may adjust the premiums from time to time. Some policies have premiums which increase as you grow older.

Know With Whom You’re Dealing. A company must meet certain qualifications to do business in your state. You should check with your state insurance department to make sure that any company you are considering is licensed in your state. This is for your protection. Agents also must be licensed by your state and may be required by the state to carry proof of licensure showing their name and the company they represent. If the agent cannot verify that he or she is licensed, do not buy from that person. A business card is not a license.

Keep Agents’ and/or Companies’ Names, Addresses and Telephone Numbers. Write down the agents’ and/or companies’ names, addresses and telephone numbers or ask for a business card that provides all that information.

If You Decide To Buy, Complete the Application Carefully. Do not believe an insurance agent who tells you that your medical history on an application is not important. Some companies ask for detailed medical information. If you leave out any of the medical information requested, coverage could be refused for a period of time for any medical condition you neglected to mention. The company also could deny a claim for treatment of an undisclosed condition and/or cancel your policy.

Look For an Outline of Coverage. You must be given a clearly worded summary of the policy… READ IT CAREFULLY.

Do Not Pay Cash. Pay by check, money order or bank draft made payable to the insurance company, not to the agent or anyone else. Get a receipt with the insurance company’s name, address and telephone number for your records.

Policy Delivery or Refunds Should be Prompt. The insurance company should deliver a policy within 30 days. If it does not, contact the company and obtain in writing the reason for the delay. If 60 days go by without a response, contact your state insurance department.

Use the “Free-Look” Provision. Insurance companies must give you at least 30 days to review a Medigap policy. If you decide you don’t want the policy, send it back to the agent or company within 30 days of receiving it and ask for a refund of all premiums you paid. Contact your state insurance department if you have a problem getting a refund.

And again, do not rush or be pressured into deciding on a policy. Trusting salespeople will take their time with you. If you are uncertain about a particular program, have the salesperson tell it to someone else, this sometimes helps too.