What you need to know about life insurance policy.
Life insurance policy is more than just filling of the application form, getting it submitted, paying your premium and then expecting that your beneficiary will get paid automatically when claim is filed. Nothing can be more frustrating than half truth. Many people only know a bit about life insurance policy in general. They don’t find time to know much about the type of life insurance policy they buy. General information is not enough. You need to take time to really understand the terms of the life insurance policy your insurer presented to you. Don’t forget that life insurance policy is not like property insurance whereby there are standard rules governing the policy. In life insurance, insurance companies are at the liberty to set their terms and rates. This means that you can receive offers with terms that are totally different from two separate insurance companies on the same type of life insurance. That is why it is always important that you read and understand the terms of every life insurance policy before you commit yourself to it. This will ensure that you are not greeted with a surprise you didn’t bargain for. So, in this article, I will like to direct the attention of the readers to certain salient points regarding life insurance policy.
Your premium may increase: Depending on the type of life insurance policy that you buy, don’t be surprised if your insurer increases your premium. Your premium can increase for many reasons such as increase in the amount of coverage. For instance, if you are on a yearly renewable term, your premium can be recalculated by your insurer. Also, any time you review your life insurance policy by way of expanding your level of coverage or by changing from term life insurance to whole life insurance; your rates may also be reviewed upward. It is your responsibility to ensure that you sign up to a life insurance policy that you will be able to continue with the payment of premium over the years even if the premium increases. If you are unable to keep paying the premium, the policy will be cancelled.
Claims are paid after death: You need to understand that claims from life insurance policy can only be made upon the death of the insured. However, the insured can borrow against the cash value of his whole life insurance. If the loan is not totally paid back upon the death of the insured, this will be netted off the proceeds of the life insurance policy. Please note that you cannot make any claim on your life insurance policy because of disability or critical illness. Your life insurance policy does not cover that. However, you can take another policy to cover you against any disability or critical illness.
Claims can be rejected: This is the painful aspect of the life insurance policy. Why will a claim be rejected? Many factors can contribute to the rejection of claim from a life insurance policy. Some of these factors are:
- Supply of wrong or insufficient information: In a bit to get cheap life insurance quotes, some people may be tempted to give wrong information or hide a truth from the insurance company. For example, if you are a smoker, occasional smoker or you have even stopped smoking and you refuse to disclose your smoking status to your insurer, you may succeed in paying cheap life insurance rates. However, if the insurance company finds out about your smoking habit at the point of making claim, the beneficiary may be denied of the claim. Therefore, it is better to be truthful about your smoking habit. Whatever that is worth doing is worth doing well.
- Non-payment of premium: The rule about insurance is “no premium, no cover”. You can’t claim to have any life insurance policy when your premium is not paid up to date. However, insurance companies usually allow grace period of 30 days to make payments. Please, don’t rely on this. It is better to pay your premium when it is due.
- Suicide: If a person dies by suicide within two years of buying a life insurance policy, insurance company may deny the payment of a claim. Some other insurance companies may even deny the payment out rightly irrespective of the period the suicide occurs. You need to understand the exclusion list that applies to your life insurance policy.
- Outside jurisdiction: If you die abroad, in a restricted country or a place that is totally outside the jurisdiction of where you were insured, the insurance company may not pay the insurance claim.
- High risk activity: If you think that you can go out there and get involved in high risk activities such as skiing and acrobatic flying and think you are covered in case of death, you are not actually doing your loved ones any good. The reason is that your life insurance policy doesn’t cover such high risk activity. Before you engage in such activity, you may need to think twice because of your family who will suffer the consequences if you die in the process.
- You out-live term insurance: If your policy is term life insurance, you will only be insured for the period specified in the policy. This can be ten, twenty or thirty years. If you die after your insurance has expired, any claim filed will not be honoured. If you want to continue to enjoy coverage after the expiration of your term life insurance, you can approach your insurer to convert the term life insurance to whole life insurance. This is part of what you need to find out whether the terms of your life insurance policy allow this before you sign up for it.
- Beneficiary is a minor: If the beneficiary of the life insurance policy is a minor at the point of death of the insured, insurance company will not pay out the proceeds to the minor. A minor is a person that is under the age of eighteen years old. Instead, the insurance company will pay the claim to the trustee appointed by the insured. This is not a total rejection of course.
All these are not to discourage anyone from taking a life insurance policy. It is just to provide useful information that can help individual ensure that the purpose of such life insurance policy is achieved.