New York Codes, Rules and Regulations › Title 11 - INSURANCE › Chapter III - Policy and Certificate Provisions › Subchapter A - Life, Accident and Health Insurance › Part 53 - Life And Annuity Cost Disclosure And Sales Illustrations › Subpart 53-2 - Disclosure Requirements › Section 53-2.7 - Life insurance buyer's guide

Current through Register Vol. 46, No. 28, July 10, 2024
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?
Once you have decided which type of policy to buy, you
						can use a cost comparison index to help you compare similar policies. Life
						insurance agents or companies can give you information about several different
						kinds of indexes that each work a little differently. One type helps you
						compare the costs between two policies if you give up the policy and take out
						the cash value. Another helps you compare your costs if you don't give up your
						policy before its coverage ends. Some help you decide what kind of questions to
						ask the agent about the numbers used in an illustration. Each index is useful
						in some ways, but they all have shortcomings. Ask your agent which will be most
						helpful to you. Regardless of which index you use, compare index numbers only
						for similar policies--those that offer basically the same benefits, with
						premiums payable for the same length of time.
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 non-guaranteed 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.