If you are approached by a life insurance agent and they suggest that you terminate your current life insurance with another company for a product they offer, be careful. A little prudence and caution can go a long way to avoid making a potentially costly mistake. There is usually no overwhelming reason to rush into changing or hastily signing a contract before talking to at least two other unbiased and reputable sources. Most agents work on commission only and the way they get paid is to sell you something new. You should ask yourself if that new policy they are offering is in your best interest or theirs.
If you're considering purchasing permanent life insurance, the agent should provide you with a policy illustration. Make sure you read the illustration carefully. The illustration should show you how the life insurance policy will perform well into the future. There should be columns for both cash value and death benefit. If you see zeros on that illustration, that is usually not a good sign. Also, make sure that the illustration is using an interest rate that is realistic; for example, a 10 percent or 12 percent rate of return is not realistic year after year. If a prospectus is given to you in connection with a new policy, read it carefully and if possible read it with someone who can analyze it with an unbiased opinion. Have it reviewed by someone who does not benefit directly from the transaction.
When comparing Whole Life or Universal Life insurance policies look for specific benefits and provisions such as:
- The crediting rate. This is the amount by which a policy grows in its cash value and death benefit. It is usually presented 2 ways: 1) An estimated historical growth and 2.) with a guaranteed minimum growth. Higher crediting rates result in greater cash value growth and possibly increased death benefits.
- A Long Term Care Settlement Option
- A guaranteed death benefit
- A guaranteed cash value
- Death benefit that can increase as cash value accumulations can support
- A 100 percent money-back guarantee
- Cash surrender charges
If you are considering a Universal Life policy, whether fixed interest or variable, it is important to know that most of the time, the cash value is not guaranteed (that means you can lose all your money that you put into it) and also, most of the time, the death benefit is not guaranteed (which means that Universal Life policy can lapse later on in the future leaving your survivors with nothing).
Making an educated decision when buying a life insurance policy (whether permanent or term) is critically important because it can have life changing consequences. Utmost care should be taken to ensure that the company and their representative (agent) fully understands your objectives and desired outcome. Take time to compare. Don't make a hasty decision. Don't buy until you are 100 percent comfortable you are making a knowledgeable decision.
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