Code of Maine Rules › 02 - DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION › 031 - BUREAU OF INSURANCE › Chapter 240 - MAINE LIFE INSURANCE SOLICITATION AND COST DISCLOSURE › Appendix 031-240-A

Current through 2024-29, July 17, 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 Maine Bureau of
				  Insurance
Reprinted by (Company Name)
(Month and Year of Printing)
This Guide Does Not Endorse Any Company or Policy.
The remaining text of the Buyer's Guide shall begin on page 2
				  as follows:
Buying Life Insurance
When you buy life insurance, you want a policy which fits
				  your needs without costing too much.
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.
A good life insurance producer, consultant, 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 producer, consultant, or company or
				  books on life insurance in 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"
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 two basic kinds of
				  life insurance.
1. Term
				insurance
2. Cash Value Life
				Insurance
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 cash value 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.
Cash Value Life 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
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 those policies are
				  higher than for ordinary life insurance since the premium payments are squeezed
				  into 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.
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"
Once you have decided which type of policy to buy, you should
				  compare similar policies from several companies. Life insurance agents or
				  companies should give you either a life insurance illustration, a cost
				  comparison index, or both. Life insurance illustrations and cost comparison
				  indexes are described below.
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 producer 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.
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 producer 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.
Cost Comparison Indexes
If you are provided cost comparison indexes, there will be
				  two types:
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.
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.
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:
[x] 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.
[x] Cost comparison indexes reflect only
				guaranteed benefits and premiums. If the policy has non-guaranteed elements
				such as dividends, the actual cost may turn out to be less than what the index
				reflects.
[x] 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 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 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.
[x]
				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.
[x] 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.
[x] 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.