Before you sign
What to ask, and what to walk away from.
The questions to put to any agent, the red flags state regulators warn about, and the parts of a policy people learn about too late.
Ask these before you sign
- If I renew this term policy, what will the premiums be, and will I lose the right to renew at a certain age?
- What's the highest premium I might ever have to pay to keep this coverage?
- Which parts of the premium or policy value aren't guaranteed?
- Can you show me an illustration of this policy's future values and benefits?
- Can I see the actual history of cash value growth, not just projections?
- Is there a surrender fee if I cancel this policy early, and how much is it?
- How many days do I have to review this policy and return it for a full refund?
- Are you and this insurance company licensed in my state?
- If you're suggesting I replace my current policy, can I get a written comparison of the new policy and my old one?
- What makes you qualified to talk to me about my financial security?
Sources: content.naic.org, tdi.texas.gov, insurance.wa.gov, page 1, insurance.ca.gov, insurance.wa.gov, page 2
Red flag
Walk away, or slow way down, if you see these
- Someone calls you out of the blue or uses high-pressure sales tactics.
- Anyone asks you to pay in cash or to sign a form with blank spaces.
- An agent pushes you to replace a policy you already have. It's illegal for an agent to replace a policy just to get a new commission.
- You're told to cancel your current policy before the new one is in place.
- An agent tells you not to talk to your current insurance company about a replacement or change they're proposing.
- Life insurance is pitched as an investment with a high return. Ask to see that specific guarantee in the contract.
- An agent offers you a gift, or a discount on an investment or loan, to get you to buy.
- A funeral or burial policy pitch. These can be expensive, and your premiums could end up totaling more than the policy pays when you die.
Sources: tdi.texas.gov, page 1, tdi.texas.gov, page 2, content.naic.org, insurance.ca.gov, insurance.wa.gov
The fine print that matters
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The free look
10 days
If you're not happy with a new policy, you can usually return it for a full refund within a set period, often 10 days after you receive it.
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It depends on your state
The free-look period depends on state rules. In Texas, it's at least 10 to 20 days, and you can cancel for any reason and get a full refund.
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The first two years
2 years
Texas's insurance department says life policies have a two-year contestable period. If the insured person dies during that time, the company may review the answers on the application.
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Honest mistakes count
During the contestable period, a company can deny a claim over wrong or missing application information, even if it was an honest mistake or had nothing to do with the cause of death.
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False answers can cost you
Tell the truth on your application. If the company finds false statements after your policy is issued, it could reduce or cancel your coverage.
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The medical exam
Insurers decide whether to sell you a policy through a process called underwriting. It often includes a medical exam and questions about your health, job, and habits.
Who gets the money
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Name a backup
Your primary beneficiary receives the death benefit. A contingent beneficiary receives it if the primary beneficiary dies before you.
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Don't name a child directly
Don't name a minor child directly as a beneficiary, because insurance companies won't pay a minor. Consider leaving the money to your estate or a trust instead.
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Update it after big changes
As the policy owner, you can change your beneficiaries at no cost. Review them every few years and after major life events.
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The name on the form wins
Keep beneficiary names current. The Illinois Department of Insurance explains that courts have held the benefit goes to the person named on the form, even when a label like "wife of the insured" is no longer true.
Source: Illinois Department of Insurance, Life Insurance FAQs
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If nobody's named
If you don't name a beneficiary, or your beneficiary has died, the company pays the death benefit to your estate.