LIFE INSURANCE

Buyer’s Guide

Prepared by the National Association ofInsurance Commissioners
As part of our state-based system of insurance regulation in the United States,
the National Association of Insurance Commissioners (NAIC) provides expertise,data, and analysis for insurance commissioners to effectively regulate the industry
and protect consumers. The U.S. standard-setting organization is governed by thechief insurance regulators from the 50 states, the District of Columbia and five U.S.
territories. Through the NAIC, state insurance regulators establish standards andbest practices, conduct peer reviews, and coordinate regulatory oversight. NAIC
staff supports these efforts and represents the collective views of state regulators
domestically and internationally. For more information, visit www.naic.org.
National Association of Insurance Commissioners
1100 Walnut Street, Suite 1500
Kansas City, MO 64106-2197(816) 842-3600© 2018 NATIONAL ASSOCIATION OF INSURANCE CO MM I S S I O N ERS

Before you
buy life
insurance...

UNDERSTAND WHAT LIFE INSURANCE IS
Life insurance pays a death benefit if you die while the policy is in effect, in exchange
for premiums you pay before your death. You can use the death benefit to protect
against financial hardships such as loss of your income, funeral expenses, medical ornursing care expenses, debt repayments, and child care costs after your death. You
can get information from www.naic.org/consumer/life_insurance.

IF YOU NEED LIFE INSURANCE, DECIDE HOW MUCH
COVERAGE TO BUY
How much life insurance to buy depends on the financial needs that will continue
after your death. Examples include supporting your family, paying for child(ren)’s
education, and paying off a mortgage. Some questions you may want to ask about
your own needs include:
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Does anyone depend on me financially?
How much of the family income do I provide?
How will my family pay my final expenses and repay debts after my death?
Do I want to leave money to charity or family?
If I have life insurance through my employer, is it enough to meet my financial
obligations?

The answers to these questions can help you decide how much coverage you need.
An insurance agent, financial advisor, or insurance company representative canhelp you evaluate your insurance needs and give you information about availablepolicies.

IF YOU ALREADY HAVE LIFE INSURANCE, ASSESS YOUR
CURRENT LIFE INSURANCE POLICY
It’s important to compare your current policy with any new policy you might buy.
Keep in mind that you may be able to change your current policy to get benefits youwant. Also, know that any changes in your health may impact your ability to get anew policy or the premium you’ll pay. Don’t cancel your current policy until you getthe new one.
Also, while you may have free or low-cost life insurance through your employer, thedeath benefit usually is less than you need. And if you leave the employer, you may
not be able to take this coverage with you.

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COMPARE THE DIFFERENTTYPES OF INSURANCEPOLICIES

policy can’t be continued. You’ll have toapply for a new policy if you still wantcoverage.

There are many types of life insurance
policies. You should choose a policy withfeatures that fit your individual needs.
Some things to consider are:

WHOLE LIFE VS. UNIVERSAL LIFE:
Whole life and universal life insurance
are two types of cash value insurance.
A key difference between the two is
how you pay for the coverage. You
typically pay premiums for whole life
insurance according to a set schedule.
In a universal life policy, you can choose
a flexible premium payment pattern aslong as you pay enough to keep yourpolicy in force.

TERM VS. CASH VALUE: Term
insurance is intended to provide lowercost coverage for a specific period oftime (“a term”). If you want coverage fora longer period of time, such as for yourlifetime, cash value insurance may be
more cost effective. Most term policies
don’t build up cash values that you canuse in the future.
RENEWABLE TERM VS.
NONRENEWABLE TERM: Most term life
insurance coverage can be continued(“renewed”) at the end of the term, even
if your health has changed. If you renew
a term policy, the new premiums arehigher. Ask what the premiums will be
before you renew the policy. Also ask if
you’ll lose the right to renew the policy
at a certain age. A nonrenewable term

LIFE INSURANCE BUYER’S GUIDEVARIABLE LIFE VS. NON-VARIABLE
LIFE: The investments you will choose(such as stock and bond funds) in avariable life policy directly impact yourcash value. These policies have thegreatest potential to build cash value
but also the greatest risk of losing cashvalue. Non-variable life policies often
have guaranteed minimums for somefeatures (interest or cash value, forexample) but not all. Non-variable lifepolicies also have less potential to build
cash value than variable life policies.

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BE SURE YOU CAN AFFORD
THE PREMIUM
Before you buy a life insurance policy,
be sure you can pay the premiums.
Can you afford the initial premium? Ifthe premium increases later, will you
still be able to afford it? The premiums
for many life insurance policies aresensitive to changes in the company’s
investment earnings, claims costs, andother expenses. If those are worse thanexpected, you may have to pay a muchhigher premium. Ask what might be thehighest premium you’d have to pay tokeep your coverage.

UNDERSTAND THE
APPLICATION PROCESSYou can apply for life insurance throughlife insurance agents, the mail, andonline. In addition to basic information,such as your name, address, employer,job title, and date of birth, you’ll be
asked for more personal information.
Depending on the type of policy, theinsurer may require you to see a doctor,
answer health-related questions, or
LIFE INSURANCE BUYER’S GUIDE

have a medical professional come toyour home or office to assess yourhealth. Usually a policy that doesn’trequire detailed health information will
cost more and provide less coveragethan one that does.
It’s important to tell the truth on theapplication. The insurance company
will check your answers so review
the application before you sign. If theinsurance company discovers false
statements on your application after
it issues your policy, it could reduce orcancel your coverage.

EVALUATE THE FUTURE OF
YOUR POLICY
Does your policy have a cash value? Insome cash value policies, the values
are low in the early years but build later
on. In other policies the values build
up gradually over the years. Most term
policies have no cash value. Ask yourinsurance agent, financial advisor, or an
insurance company representative foran illustration showing future values andbenefits.

CHOOSE A BENEFICIARY
A beneficiary is the person(s) ororganization(s) you name to receive yourlife insurance policy’s death benefit.
You’ll need to know the Social Security
or tax identification number for all
beneficiaries. Experts advise you not
to name a minor child as a beneficiary.
Insurance companies won’t pay a minor.
Instead, consider leaving the money toyour estate or trust.

6

After you
buy life
insurance...

READ YOUR POLICY CAREFULLY
After you carefully read your policy, you should be able to answer the following
important questions:• Is your personal information correct?
• Do premiums or policy values vary from year to year?
• What part of the premium or policy value isn’t guaranteed?
• How will the timing of money paid and received affect any interest the policy
might earn?
Your insurance agent, financial advisor, or an insurance company representative canhelp you understand anything that isn’t clear.
If you’re not satisfied with your new policy, you can return it for a full refund withina certain period, usually 10 days after you receive it. The review period usually isstated on the first page of the policy.

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REVIEW YOUR LIFE
INSURANCE POLICY EVERYFEW YEARS

Notes...

Review your policy with your insurance
agent, financial advisor, or an insurancecompany representative every few years
to keep up with changes in your policy
and your needs.
•••

Have the premiums or benefitschanged since your policy wasissued?
Do the death benefits still meet yourneeds?
Do you need more or less coverageafter life events, such as birth,adoption, marriage, job change,death, or divorce?

The insurance company can provide
policy statements and illustrations
to help with this review. As the policy
owner, you can change beneficiaries
at no cost. Be sure to review yourbeneficiaries every few years, especiallyafter major life events that affect yourlife insurance needs.

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