Alabama Administrative Code › Title 482 - ALABAMA DEPARTMENT OF INSURANCE › Chapter 482-1-131 - LIFE INSURANCE DISCLOSURE REGULATION › Appendix A - Life Insurance Buyer's Guide

Current through Register Vol. 42, No. 9, June 28, 2024
[The face page of the Buyer's Guide shall read as
				follows:]
Life Insurance Buyer's Guide
This guide can help you when you shop for life insurance. It
				discusses how to:
* Find a Policy That Meets Your Needs and Fits Your
				Budget
* Decide How Much Insurance You Need
* Make Informed Decisions When You Buy a Policy
Prepared by the National Association of Insurance
				Commissioners
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.
This guide does not endorse any company or policy.
Reprinted by. ..
IMPORTANT THINGS TO CONSIDER
1. Review your own insurance needs and circumstances. Choose
				the kind of policy that has benefits that most closely fit your needs. Ask an
				agent or company to help you.
2. Be sure that you can handle premium payments. Can you afford
				the initial premium? If the premium increases later and you still need
				insurance, can you still afford it?
3. Don't sign an insurance application until you review it
				carefully to be sure all the answers are complete and accurate.
4. Don't buy life insurance unless you intend to stick with
				your plan. It may be very costly if you quit during the early years of the
				policy.
5. Don't drop one policy and buy another without a thorough
				study of the new policy and the one you have now. Replacing your insurance may
				be costly.
6. Read your policy carefully. Ask your agent or company about
				anything that is not clear to you.
7. Review your life insurance program with your agent or
				company every few years to keep up with changes in your income and your
				needs.
Buying Life Insurance
When you buy life insurance, you want coverage that fits your
				needs.
First,
decide how much you need-and for how
				long-and what you can afford to pay. Keep in mind the major reason you buy life
				insurance is to cover the financial effects of unexpected or untimely death.
				Life insurance can also be one of many ways you plan for the future.
Next,
learn what kinds of policies will meet your
				needs and pick the one that best suits you.
Then,
choose the combination of policy premium and
				benefits that emphasizes protection in case of early death, or benefits in case
				of long life, or a combination of both.
It makes good sense to ask a life insurance agent or company to
				help you. An agent can help you review your insurance needs and give you
				information about the available policies. If one kind of policy doesn't seem to
				fit your needs, ask about others.
This guide provides only basic information. You can get more
				facts from a life insurance agent or company or from your public
				library.
What About the Policy You Have Now?
If you are thinking about dropping a life insurance policy,
				here are some things you should consider:
* If you decide to replace your policy, don't cancel your old
				policy until you have received the new one. You then have a minimum period to
				review your new policy and decide if it is what you wanted.
* It may be costly to replace a policy. Much of what you paid
				in the early years of the policy you have now, paid for the company's cost of
				selling and issuing the policy. You may pay this type of cost again if you buy
				a new policy.
* Ask your tax advisor if dropping your policy could affect
				your income taxes.
* If you are older or your health has changed, premiums for the
				new policy will often be higher. You will not be able to buy a new policy if
				you are not insurable.
* You may have valuable rights and benefits in the policy you
				now have that are not in the new one.
* If the policy you have now no longer meets your needs, you
				may not have to replace it. You might be able to change your policy or add to
				it to get the coverage or benefits you now want.
* At least in the beginning, a policy may pay no benefits for
				some causes of death covered in the policy you have now.
In all cases, if you are thinking of buying a new policy, check
				with the agent or company that issued you the one you have now. When you bought
				your old policy, you may have seen an illustration of the benefits of your
				policy. Before replacing your policy, ask your agent or company for an updated
				illustration. Check to see how the policy has performed and what you might
				expect in the future, based on the amounts the company is paying now.
How Much Do You Need?
Here are some questions to ask yourself:
* How much of the family income do I provide? If I were to die
				early, how would my survivors, especially my children, get by? Does anyone else
				depend on me financially, such as a parent, grandparent, brother or
				sister?
* Do I have children for whom I'd like to set aside money to
				finish their education in the event of my death?
* How will my family pay final expenses and repay debts after
				my death?
* Do I have family members or organizations to whom I would
				like to leave money?
* Will there be estate taxes to pay after my death?
* How will inflation affect future needs?
As you figure out what you have to meet these needs, count the
				life insurance you have now, including any group insurance where you work or
				veteran's insurance. Don't forget Social Security and pension plan survivor's
				benefits. Add other assets you have: savings, investments, real estate and
				personal property. Which assets would your family sell or cash in to pay
				expenses after your death?
What Is the Right Kind of Life Insurance?
All policies are not the same. Some give coverage for your
				lifetime and others cover you for a specific number of years. Some build up
				cash values and others do not. Some policies combine different kinds of
				insurance, and others let you change from one kind of insurance to another.
				Some policies may offer other benefits while you are still living. Your choice
				should be based on your needs and what you can afford.
There are two basic types of life insurance:
term
				insurance
and
cash value insurance.
Term insurance
				generally has lower premiums in the early years, but does not build up cash
				values that you can use in the future. You may combine cash value life
				insurance with term insurance for the period of your greatest need for life
				insurance to replace income.
Term Insurance
covers you for a term of one or
				more years. It pays a death benefit only if you die in that term. Term
				insurance generally offers the largest insurance protection for your premium
				dollar. It generally does not build up cash value.
You can renew most term insurance policies for one or more
				terms even if your health has changed. Each time you renew the policy for a new
				term, premiums may be higher. Ask what the premiums will be if you continue to
				renew the policy. Also ask if you will lose the right to renew the policy at
				some age. For a higher premium, some companies will give you the right to keep
				the policy in force for a guaranteed period at the same price each year. At the
				end of that time you may need to pass a physical examination to continue
				coverage, and premiums may increase.
You may be able to trade many term insurance policies for a
				cash value policy during a conversion period-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.
Cash Value Life Insurance
is a type of insurance
				where the premiums charged are higher at the beginning than they would be for
				the same amount of term insurance. The part of the premium that is not used for
				the cost of insurance is invested by the company and builds up a cash value
				that may be used in a variety of ways. You may borrow against a policy's cash
				value by taking a policy loan. If you don't pay back the loan and the interest
				on it, the amount you owe will be subtracted from the benefits when you die, or
				from the cash value if you stop paying premiums and take out the remaining cash
				value. You can also use your cash value to keep insurance protection for a
				limited time or to buy a reduced amount without having to pay more premiums.
				You also can use the cash value to increase your income in retirement or to
				help pay for needs such as a child's tuition without canceling the policy.
				However, to build up this cash value, you must pay higher premiums in the
				earlier years of the policy. Cash value life insurance may be one of several
				types; whole life, universal life and variable life are all types of cash value
				insurance.
Whole Life Insurance
covers you for as long as you
				live if your premiums are paid. You generally pay the same amount in premiums
				for as long as you live. When you first take out the policy, 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 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 since the premium payments are made during a shorter period.
Universal Life Insurance
is a kind of flexible
				policy that lets you vary your premium payments. You can also adjust the face
				amount of your coverage. Increases may require proof that you qualify for the
				new death benefit. The premiums you pay (less expense charges) go into a policy
				account that earns interest. Charges are deducted from the account. If your
				yearly premium payment plus the interest your account earns is less than the
				charges, your account value will become lower. If it keeps dropping, eventually
				your coverage will end. To prevent that, you may need to start making premium
				payments, or increase your premium payments, or lower your death benefits. Even
				if there is enough in your account to pay the premiums, continuing to pay
				premiums yourself means that you build up more cash value.
Variable Life Insurance
is a kind of insurance
				where the death benefits and cash values depend on the investment performance
				of one or more separate accounts, which may be invested in mutual funds or
				other investments allowed under the policy. Be sure to get the prospectus from
				the company when buying this kind of policy and STUDY IT CAREFULLY. You will
				have higher death benefits and cash value if the underlying investments do
				well. Your benefits and cash value will be lower or may disappear if the
				investments you chose didn't do as well as you expected. You may pay an extra
				premium for a guaranteed death benefit.
Life Insurance Illustrations
You may be thinking of buying a policy where cash values, death
				benefits, dividends or premiums may vary based on events or situations the
				company does not guarantee (such as interest rates). If so, you may get an
				illustration from the agent or company that helps explain how the policy works.
				The illustration will show how the benefits that are not guaranteed will change
				as interest rates and other factors change. The illustration will show you what
				the company guarantees. It will also show you what could happen in the future.
				Remember that nobody knows what will happen in the future. You should be ready
				to adjust your financial plans if the cash value doesn't increase as quickly as
				shown in the illustration. You will be asked to sign a statement that says you
				understand that some of the numbers in the illustration are not
				guaranteed.
Finding a Good Value in Life Insurance
After you have decided which kind of life insurance is best for
				you, compare similar policies from different companies to find which one is
				likely to give you the best value for your money.
A simple comparison of the premiums is not enough. There are
				other things to consider. For example:
* Do premiums or benefits vary from year to year?
* How much do the benefits build up in the policy?
* What part of the premiums or benefits is not
				guaranteed?
* What is the effect of interest on money paid and received at
				different times on the policy?
Remember that no one company offers the lowest cost at
all
ages for
all
kinds and amounts of insurance. You
				should also consider other factors:
* How quickly does the cash value grow? Some policies have low
				cash values in the early years that build quickly later on. Other policies have
				a more level cash value build-up. A year-by-year display of values and benefits
				can be very helpful. (The agent or company will give you a policy summary or an
				illustration that will show benefits and premiums for selected years.)
* Are there special policy features that particularly suit your
				needs?
* How are nonguaranteed values calculated? For example,
				interest rates are important in determining policy returns. In some companies
				increases reflect the average interest earnings on all of that company's
				policies regardless of when issued. In others, the return for policies issued
				in a recent year, or a group of years, reflects the interest earnings on that
				group of policies; in this case, amounts paid are likely to change more rapidly
				when interest rates change.