Illinois Administrative Code › Title 50 - INSURANCE › Part 930 - LIFE INSURANCE SOLICITATION › Exhibit A - Life Insurance Buyer's Guide

Current through Register Vol. 48, No. 28, July 12, 2024
(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 relative cost of similar life
				insurance policies.
This guide has been prepared by the Illinois Department of
				Insurance, in part using materials developed by National Association of
				Insurance Commissioners.
(The following language shall appear 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 State 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. Life insurance can be bought either on an
				individual basis or on a group basis. Group insurance may be inexpensive when
				compared to individual insurance. It is important to remember that insurance
				purchased on this basis is usually term insurance, and hence will not develop
				cash values, and is dependent on your continued membership in the group or
				employment. Also, the amount of insurance that is available for purchase is
				usually limited.
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. Life
				insurance can provide cash for last expenses, and income for you family's
				future living expenses.
Your insurance should come as close as you can afford to make
				up the difference between (1) what your dependents would have if you were to
				die now, and (2) what they would actually need at some time in the future when
				needs change.
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
The kind of life insurance you purchase is dependent on the
				need you are trying to satisfy. Some needs are temporary, i.e. do not exist
				throughout your life, while other needs are permanent. As an example, the need
				to finance your children's education is a temporary need. The need to meet
				mortgage payments is also a temporary need since it exists only while the
				mortgage exists. On the other hand, the financial needs of your family after
				your death is a permanent need.
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 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 "non-participating" 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 non-participating policy, remember that the total
				cost of the participating policy will be reduced by dividends, but the cost of
				the non-participating 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 awhile,
			 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.
(6) An important fact to
			 note is the difference in premium payments paid during one year's time based on
			 an annual premium versus the annualized periodic premium. For example, if you
			 choose to pay premiums on a monthly basis, the annualized periodic premium
			 would be twelve (12) times the monthly premium. There may be a significant
			 difference between the annualized periodic premium and the annual premium and
			 it should be considered when deciding on a payment schedule.
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.