Administrative Rules of Montana › Department 6 - STATE AUDITOR › Chapter 6.6 - INSURANCE DEPARTMENT › Subchapter 6.6.2 - Life Insurance Solicitation › Rule 6.6.209 - SAMPLE BUYER'S GUIDE

Current through Register Vol. 13, July 5, 2024
(1) The following
				is a sample form:
(a) 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 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 the 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.