Indiana Administrative Code › Title 760 - DEPARTMENT OF INSURANCE › Article 1 - GENERAL PROVISIONS › Rule 24 - Life Insurance Solicitation › Section 24-9 - Life insurance buyer's guide

Current through July 10, 2024
Authority: IC
				  27-1-3-7
Affected: IC
				  27-1-3-7
Sec. 9.
Appendix. 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 what 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.
Finding a Low Cost Policy. After you have decided what 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.
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.