Connecticut Administrative Code › Title 38a - Insurance Department › 819 - Unfair Insurance Practices: Advertisements of Accident and Sickness Insurance › Life Insurance Solicitation › Appendix - Appendix

Current through July 10, 2024
Life Insurance Buyer's Guide
The face page of the Buyer's Guide shall read as
				  follows:
LIFE INSURANCE BUYER'S GUIDE
This guide can show you how to save money when you shop for
				  life insurance.
It helps you to:
-Decide how much life insurance you should buy
-Decide what kind of life insurance policy you need,
				  and
-Compare the cost of similar life insurance policies.
Prepared by the National Association of Insurance
				  Commissioners.
Reprinted by (Company Name)
(Month and year of printing)
The Buyer's Guide shall contain the following language at the
				  bottom of page 2:
The National Association of Insurance Commissioners is an
				  association of state insurance regulatory officials. This association helps the
				  various Insurance Departments to coordinate insurance laws for the benefit of
				  all consumers. You are urged to use this Guide in making a life insurance
				  purchase.
THIS GUIDE DOES NOT ENDORSE ANY COMPANY OR POLICY.
The remaining text of the Buyer's Guide shall begin on page 3
				  as follows:
BUYING LIFE INSURANCE
When you buy life insurance, you want a policy which fits
				  your needs without costing too much. Your first step is to decide how much you
				  need, how much you can afford to pay, and the kind of policy you want. Then,
				  find out what various companies charge for that kind of policy. You can find
				  important differences in the cost of life insurance by using the life insurance
				  cost indexes which are described in this guide. A good life insurance agent or
				  company will be able and willing to help you with each of these shopping
				  steps.
If you are going to make a good choice when you buy life
				  insurance, you need to understand which kinds are available. If one kind does
				  not seem to fit your needs, ask about the other kinds which are described in
				  this guide. If you feel that you need more information than is given here, you
				  may want to check with a life insurance agent or company or books on life
				  insurance in your public library.
CHOOSING THE AMOUNT
One way to decide how much life insurance you need is to
				  figure how much cash and income your dependents would need if you were to die.
				  You should think of life insurance as a source of cash needed for expenses of
				  final illnesses, paying taxes, mortgages or other debts. It can also provide
				  income for your family's living expenses, educational costs, and other future
				  expenses. Your new policy should come as close as you can afford to making up
				  the difference between (1) what your dependents would have if you were to die
				  now, and (2) what they would actually need.
CHOOSING THE RIGHT KIND
All life insurance policies agree to pay an amount of money
				  if you die. But all policies are not the same. There are three basic kinds of
				  life insurance:
1. Term insurance
2. Whole Life insurance
3. Endowment insurance
Remember, no matter how fancy the policy title or sales
				  presentation might appear, all life insurance policies contain one or more of
				  the three basic kinds. If you are confused about a policy that sounds
				  complicated, ask the agent or company if it combines more than one kind of life
				  insurance. The following is a brief description of the three basic
				  kinds:
Term Insurance
Term insurance is death protection for a "term" of one or
				  more years. Death benefits will be paid only if you die within that term of
				  years. Term insurance generally provides the largest immediate death protection
				  for your premium dollar.
Some term insurance policies are "renewable" for one or more
				  additional terms even if your health has changed. Each time you renew the
				  policy for a new term, premiums will be higher. You should check the premiums
				  at older ages and the length of time the policy can be continued.
Some term insurance policies are also "convertible." This
				  means that before the end of the conversion period, you may trade the term
				  policy for a whole life or endowment insurance policy even if you are not in
				  good health. Premiums for the new policy will be higher than you have been
				  paying for the term insurance.
Whole Life Insurance
Whole Life insurance gives death protection for as long as
				  you live. The most common type is called "straight life" or "ordinary life"
				  insurance, for which you pay the same premiums for as long as you live. These
				  premiums can be several times higher than you would pay initially for the same
				  amount of term insurance. But they are smaller than the premiums you would
				  eventually pay if you were to keep renewing a term insurance policy until your
				  later years.
Some whole life policies let you pay premiums for a shorter
				  period such as 20 years, or until age 65. Premiums for these policies are
				  higher than for ordinary life insurance since the premium payments are squeezed
				  into a shorter period.
Although you pay higher premiums, to begin with, for whole
				  life insurance than for term insurance, whole life insurance policies develop
				  "cash values" which you may have if you stop paying premiums. You can generally
				  either take the cash, or use it to buy some continuing insurance protection.
				  Technically speaking, these values are called "nonforfeiture benefits." This
				  refers to benefits you do not lose (or "forfeit") when you stop paying
				  premiums. The amount of these benefits depends on the kind of policy you have,
				  its size, and how long you have owned it.
A policy with cash values may also be used as collateral for
				  a loan. If you borrow from the life insurance company, the rate of interest is
				  shown in your policy. Any money which you owe on a policy loan would be
				  deducted from the benefits if you were to die, or from the cash value if you
				  were to stop paying premiums.
Endowment Insurance
An endowment insurance policy pays a sum or income to you-the
				  policyholder- if you live to a certain age. If you were to die before then, the
				  death benefit would be paid to your beneficiary. Premiums and cash values for
				  endowment insurance are higher than for the same amount of whole life
				  insurance. Thus endowment insurance gives you the least amount of death
				  protection for your premium dollar.
FINDING A LOW COST POLICY
After you have decided which kind of life insurance fits your
				  needs, look for a good buy. Your chances of finding a good buy are better if
				  you use two types of index numbers that have been developed to aid in shopping
				  for life insurance. One is called the "Surrender Cost Index" and the other is
				  the "Net Payment Cost Index." It will be worth your time to try to understand
				  how these indexes are used; but in any event, use them only for comparing the
				  relative costs of similar policies. LOOK FOR POLICIES WITH LOW COST INDEX
				  NUMBERS.
What is Cost?
"Cost" is the difference between what you pay and what you
				  get back. If you pay a premium for life insurance and get nothing back, your
				  cost for the death protection is the premium. If you pay a premium and get
				  something back later on, such as a cash value, your cost is smaller than the
				  premium.
The cost of some policies can also be reduced by dividends;
				  these are called "participating" policies. Companies may tell you what their
				  current dividends are, but the size of future dividends is unknown today and
				  cannot be guaranteed. Dividends actually paid are set each year by the
				  company.
Some policies do not pay dividends. These are called
				  "guaranteed cost" or "nonparticipating" policies. Every feature of a guaranteed
				  cost policy is fixed so that you know in advance what your future cost will
				  be.
The premiums and cash values of a participating policy are
				  guaranteed, but the dividends are not. Premiums for participating policies are
				  typically higher than for guaranteed cost policies, but the cost to you may be
				  higher or lower, depending on the dividends actually paid.
What Are Cost Indexes?
In order to compare the cost of policies, you need to look
				  at:
1. Premiums
2. Cash values
3. Dividends
Cost indexes use one or more of these factors to give you a
				  convenient way to compare relative costs of similar policies. When you compare
				  costs, an adjustment must be made to take into account that money is paid and
				  received at different times. It is not enough to just add up the premiums you
				  will pay and to subtract the cash values and dividends you expect to get back.
				  These indexes take care of the arithmetic for you. Instead of having to add,
				  subtract, multiply, and divide many numbers yourself, you just compare the
				  index numbers which you can get from life insurance agents and
				  companies:
1. LIFE INSURANCE SURRENDER COST INDEX. This index is useful
				  if you consider the level of the cash values to be of primary importance to
				  you. It helps you compare costs if at some future point in time, such as 10 or
				  20 years, you were to surrender the policy and take its cash value.
2. LIFE INSURANCE NET PAYMENT COST INDEX. This index is
				  useful if your main concern is the benefits that are to be paid at your death
				  and if the level of cash values is of secondary importance to you. It helps you
				  compare costs at some future point in time, such as 10 or 20 years, if you
				  continue paying premiums on your policy and do not take its cash value.
There is another number called the Equivalent Level Annual
				  Dividend. It shows the part dividends play in determining the cost index of a
				  participating policy. Adding a policy's Equivalent Level Annual Dividend to its
				  cost index allows you to compare total costs of similar policies before
				  deducting dividends. However, if you make any cost comparisons of a
				  participating policy with a nonparticipating policy, remember that the total
				  cost of the participating policy will be reduced by dividends, but the cost of
				  the nonparticipating policy will not change.
How Do I Use Cost Indexes?
The most important thing to remember when using cost indexes
				  is that a policy with a small index number is generally a better buy than a
				  comparable policy with a larger index number. The following rules are also
				  important:
1. Cost comparisons should only be made between similar plans
				  of life insurance. Similar plans are those which provide essentially the same
				  basic benefits and require premium payments for approximately the same period
				  of time. The closer policies are to being identical, the more reliable the cost
				  comparison will be.
2. Compare index numbers only for the kind of policy, for
				  your age and for the amount you intend to buy. Since no one company offers the
				  lowest cost for
all
types of insurance at
all
ages and for
all
amounts of insurance, it is important that
				  you get the indexes for the actual policy, age, and amount which you intend to
				  buy. Just because a "shopper's guide" tells you that one company's policy is a
				  good buy for a particular age and amount, you should not assume that all of
				  that company's policies are equally good buys.
3. Small differences in index numbers could be offset by
				  other policy features, or differences in the quality of service you may expect
				  from the company or its agent. Therefore, when you find small differences in
				  cost indexes, your choice should be based on something other than cost.
4. In any event, you will need other information on which to
				  base your purchase decision. Be sure you can afford the premiums, and that you
				  understand its cash values, dividends, and death benefits. You should also make
				  a judgment on how well the life insurance company or agent will provide service
				  in the future, to you as a policyholder.
5. These life insurance cost indexes apply to new policies
				  and should not be used to determine whether you should drop a policy you have
				  already owned for a while, in favor of a new one. If such a replacement is
				  suggested, you should ask for information from the company which issued the old
				  policy before you take action.
IMPORTANT THINGS TO REMEMBER-A SUMMARY
The first decision you must make when buying a life insurance
				  policy is choosing a policy whose benefits and premiums most closely meet your
				  needs and ability to pay. Next, find a policy which is also a relatively good
				  buy. If you compare Surrender Cost Indexes and Net Payment Cost Indexes of
				  similar competing policies, your chances of finding a relatively good buy will
				  be better than if you do not shop. REMEMBER, LOOK FOR POLICIES WITH LOWER COST
				  INDEX NUMBERS. A good life insurance agent can help you to choose the amount of
				  life insurance and kind of policy you want and will give you cost indexes so
				  that you can make cost comparisons of similar policies.
Don't buy life insurance unless you intend to stick with it.
				  A policy which is a good buy when held for 20 years can be very costly if you
				  quit during the early years of the policy. If you surrender such a policy
				  during the first few years, you may get little or nothing back and much of your
				  premium may have been used for company expenses.
Read your new policy carefully, and ask the agent or company
				  for an explanation of anything you do not understand. Whatever you decide now,
				  it is important to review your life insurance program every few years to keep
				  up with changes in your income and responsibilities.