Life insurance policies can often bury important items in the fine print - and insurers are betting you won't read them. But from contestability periods to accelerated death benefits, it's in a consumer's best interest to completely research his life insurance policy.

What's the best way to check those items off your life insurance "to do" checklist? Here's a ten-item blueprint:​

It's actually common for life insurance consumers to confuse the two main policy models - term and permanent insurance. Make no mistake, there is a big difference between the two. By and large, a term insurance policy covers a specific period of time, for example, 10 or 20 years. When that timetable ends, policy-holders cease making premium payments and the policy coverage ends. A permanent life insurance policy covers the policyholder until he dies, no matter his age - as long as premium payments are current. Basically, term insurance costs less, and covers less, while permanent insurance costs more, and covers more, usually for wealthier individuals who have large estates to manage. "Understand the difference between term, whole life and Universal life, and know they are not created equally," says Brett Anderson, president of St. Croix Advisors, LLC, in Hudson, Wis.

For a good overall look at all of the information and data included in your life insurance policy, make sure you review the policy's "declaration page" (often referred to as a "policy summary.") That page should include a line-item summary of, among other items, who is insured, at what cost, the nature of the coverage, any policy limits, and any period terms and the beneficiary (or beneficiaries) of your life insurance policy. Keep it handy, and review it right away when you receive your policy.

It's only too easy for a policy-holder to overlook the insurance policy's issue date, especially if it's a term insurance policy. That's because term policies carry termination dates, and permanent insurance policies include a surrender charge which might factor into the equation if the policy is canceled early.

The policyholder will want to know exactly how much money is going to be paid upon his passing, how the money will be dispersed, how any beneficiary can and will make a claim after the policy holder's death and when the amount will be paid out. Also, make sure the names of any beneficiaries are spelled correctly, and that the beneficiaries may not necessarily be noted in the listed benefits page.

Many people purchase a universal life policy but don't understand how to determine how much premium to pay each year, says Todd Erkis, insurance expert and author of What Insurance Companies Don't Want You To Know: An Insider Shows You How To Win at Insurance. "Premiums paid to the insurance company for a universal life policy are 'flexible,' meaning there is no fixed amount that has to be paid every year," Erkis says. "At the inception of the policy, the policy owner will receive a plan for how much in premium needs to be paid but the actual amount of premium required each year depends on how the policy performs. If the policy performs well, then a lower premium amount can be paid." Check with your insurance company on that issue, Erkis recommends.

Term life insurance policies usually have a time period where the premium is guaranteed, like 10 or 15 years. "After the guarantee period ends, the insurance company will send a bill with a premium that is significantly larger than what was previously paid," Erkis notes. "Some people will receive the bill and pay the larger amount. Unless a person is very unhealthy, this is a mistake. If the insurance is still needed, it is better to look for a new policy instead.

In life insurance policies, insurance companies include what's known as a contestability period - a timeframe (usually two years from the life insurance policy's issue date) when the insurer is allowed can contest and even deny financial claims made by beneficiaries, if there are any major errors or discrepancies on personal data listed in the policy. "Almost all life insurance policies include this clause," notes Garrett Ball, owner of Secure Medicare Solutions, an independent life and health insurance agency. "This is a predetermined time period, usually two years, during which an insurance company can cancel coverage or deny a claim if they find out that something was omitted at the time of application." Regardless of whether a claim has been made, an insurance company can refuse to pay death benefits to your beneficiary if you "omitted something on your application and it is still within the contestability period," he adds.

Unlike the contestability period, this clause does not have a time limit - it is permanent, notes Ball. "If an insurance company finds that something was willingly misstated on an application, the policy can be immediately canceled," he explains. "This refers to something that would have, if represented correctly initially, caused the insurance company to not approve you for coverage. An example of this would be if you are a smoker and applied for a non-tobacco rate. Once the insurance company finds out about your misrepresentation, they can and will cancel your policy and refuse any benefits."

"The main topic that I see in relation to life insurance policies is the move away from convertible products," says Jeremy Hallett, founder of Quotacy.com, an online insurance provider in Minneapolis. Hallet says that after a 20-year period, if a client has acquired any major changes in health, it's "difficult, too expensive, or even impossible" to buy new term insurance coverage. "A policy that doesn't have conversion privileges is quite adequate for the first 20 years, but if the client has had a health change and wants to continue coverage it is valuable to have that option," he explains. "Since most of us believe we aren't likely to get sick or hurt and 20 years is a long time away, we don't place enough value on this provision."

Some companies will pay out a portion of your death benefit while you are still living if a doctor has classified you as terminally ill, says Pierre-Emmanuel, president of InsuraWealth in Tampa, Fla. "This allows you to access funds to pay for whatever, experimental drugs, and get your affairs in order," he says.

by Brian O'Connell | July 8, 2017

 

Author: Brian O'Connell

Source: TheStreet, Inc.

Retrieved from: www.thestreet.com