Life insurance policies are basically the contracts between insured persons and insurance companies.
The insurance company receives premium from the insured in exchange of a lump sum which is paid to beneficiaries when the insured dies or to the insured in case of a term insurance upon maturity while the insured is alive.
The different types of insurance policies for life include whole insurance, universal insurance and term insurance.
The insured chooses the one they want depending on their needs.
There are things that are included in your life insurance policy in fine print and hence you may not be able to pay keen attention to them.
To be on the safe side, it is important for you to take a look at them and read them keenly to avoid trouble with your insurer in the future.
There are fine prints you should look out for in a life insurance policy.
They include:
- Know the difference between permanent and term insurance.
As the consumer, you may not see much need for this but it is vital.
Whereas permanent insurance runs through the holder’s lifetime; that is, until his death, term insurance is valid only for certain periods of time.
Term insurance is usually cheaper than permanent insurance, but it covers less than the latter.
Permanent insurance is mostly the preference of individuals who are wealthy or have big estates whereas term insurance is mostly preferred by individuals who do not have much to manage.
- Read the declaration page carefully
It is also important to read the declaration page of the insurance very carefully.
The declaration page is also called the policy summary.
It basically has information on the insured, the cost and nature of the insurance, policy limits if any, terms of the period and beneficiaries of the insurance policy.
Ensure you review your policy summary immediately you receive your policy.
- Check the date of issue
This is very easy to overlook, but is just as important as the other fine print details.
Make sure you check the date issued, especially in case of term insurance policy.
Term insurance policies have dates of termination, and hence the date of commencement is vital.
Ensure that it is the right date to avoid being inconvenienced upon termination of the policy.
Permanent insurance policies on the other hand contain a surrender charge which comes into play where there is early cancellation of the policy.
- Value of the policy
Here, you will need to know how much money will be paid upon your demise, how it is going to be dispersed, how your beneficiaries can make a claim and when this money will be paid to them.
It is important to have the beneficiaries’ names spelled correctly to avoid trouble when it comes to dispersing the money to them upon your death.
You should also note that their names may not necessarily be listed in the benefits page, but that they remain as beneficiaries upon your death.
- Payable premium
It is common for many policy holders not to be aware of how much premium they should pay.
You should look out for this.
It is important to determine and know how much premium you are required to pay every year.
For universal life policy, the premium payable is flexible, meaning it is not fixed.
The amount paid each year is dependent on the performance of the policy.
The better the policy performs, the lower the premium the insured has to pay.
This is despite the holder being told the total amount to be paid at the inception of the policy.
It is important for you as the policy holder to check and be sure of the amount you are to pay to the insurance company.
- Guarantee period
For term life insurance, there is a guarantee period, usually 10 to 15 years after which it expires and the insurer sends you a bill.
In most cases this bill is much higher than the amount previously paid, which is wrong.
Most people proceed to pay the bill without questioning it much.
This should not be the case except in instances where the insured is very ill.
If there is still need for insurance, it is better to consider getting a new policy.
- Contestability period
Life insurance policies have a contestability period.
A contestability period is the time within which the insurer can make claims or even deny beneficiaries’ financial claims in cases where there are major errors on the personal data that is listed in the life policy.
Within this period, the insurer can even cancel coverage should they find out that there was an omission during application.
You as the insured should also note that the insurer can fail to make death payments to the beneficiaries whether or not a claim was made if they realize that there was an omission during your application, if you are within the contestability period.
- Cancellation outside the contestability period
There can also be cancellation outside the contestability period.
This is in case of a permanent clause.
It happens when the company finds out that there was a misstatement that was done willingly where its initial statement would have caused the insurer not to accept to cover you.
The insurer will in such a case refuse to pay any benefits.
- Convertible products
This is a major topic when it comes to life insurance policies.
After 20 years, if a client has any new developments on health, it is very difficult to acquire new term coverage on the insurance.
Policies that you intend to rely on after 20 years or more should provide for conversion privileges.
- Payment of benefits within the insured’s lifetime
If an insured has been classified as terminally ill, the insurance company may have to pay out part of their death benefit while they are still alive.
This is to allow the insured pay their medical bills among other issues.
In conclusion, it is vital to check out the fine print details in an insurance policy before you consent to seek a company’s services.