It's no secret that the majority of Canadians today don't really
understand the life insurance policies they own or the subject matter
altogether. Life insurance is such a vital financial tool and important part to
your financial planning that it is incumbent upon you to have a basic level of
understanding.
Here are 3 quick pitfalls that are important to be aware of.
Incomplete Details In The Application
All life insurance contracts have a two-year contestability clause
which means the insurer can contest a submitted claim within two years of the
application date if material information was not disclosed during the
application process. If you have forgotten to note a relevant fact in your
application pertinent to the claim it is possible that your claim could be
denied. Fraudulent acts such as lying in the application would not only have a
claim denied but possibly also have your policy rescinded entirely. It goes
without saying that one should always be truthful when completing a life
insurance contract or any insurance contract for that matter. A copy of the
original application often makes a part of the policy and generally supersedes
the policy itself. Having-said-that, each insured has a 10-day right to review
their policy once they receive it. In that time period if you feel the policy
is not up to the standard you thought it to be, you can return it to the
company and all premiums paid would be refunded
Buying The Right Term Coverage For Your Situation
This process should first start with a question: "What do I
need the insurance for?" If your need is to cover a debt or liability then
perhaps term is best however, if your need is more long-term such as for final
expenses, then permanent or whole life would be a better fit. Once you have
established your need you'll then have to decide what type of coverage you
want; term or permanent.
Term contracts are the simplest to understand and the cheapest
because there is an "end" to the policy; generally 5, 10, 15, 20
sometimes even up to 35 years. If the policy is renewable an increased premium
will be required come the end of the term and this is often a big shock to the
client's bottom line. As an example: a 35 year old male, non-smoker with a
20-year term and 300k benefit may pay anywhere from $300 to $400 per year in
premiums. When this policy renews at age 55 his new annual premium could go as
high as $3,000 per year! Most people don't understand this and come term end
are devastated, generally unable to continue the policy. It is recommended that
your term program have a convertibility clause so that you have the option of
converting your term life into a permanent policy. You can exercise this right
at any time within the term of the policy without evidence of insurability.
Taking a term policy without a convertibility clause should only be done when
making your purchase for something of a specified duration. Also, the short
side to term life is that it does not accumulate any value within the policy
whereas permanent/whole life does.
Permanent/whole life is a very complex from of life insurance
because it has both insurance and investment aspects to it. These policies are
most beneficial because you have value built up in the policy and you are
covered until death however, they are much more expensive than term insurance.
An option that you can consider is a permanent policy with a specified term to
pay it. Using our previous example, you could have a permanent policy that has
a 20-pay term meaning you will make premium payments for the next 20 years and
after that you will have your policy until death without ever making another
payment towards it. It is very important to understand the variables along with
your needs before you make your purchase.
Buying Creditor Life Insurance vs. Personal Life Insurance
One of the biggest misconceptions people have is that their
creditor life insurance is true personal life insurance coverage and will
protect their family in the event of their death. Far too often consumers
purchase these products, generally found with their mortgage and credit cards,
by simply putting a checkmark in a box during the application process agreeing
to have the plan. It sounds like the responsible thing to do but many families
are left in paralyzing situations come claim time. Creditor life insurance,
such as mortgage life insurance, is designed to cover the remaining debt you
have. Making timely mortgage payments is ultimately declining your remaining
balance. Creditor life insurance also declines as your debt declines. Keep in
mind that the lender is named as your beneficiary in your policy so
consequently, upon death your remaining balance on your mortgage or credit card
is paid to the lender, not your family. In a personal life insurance policy you
choose the beneficiary and upon death the full benefit amount is paid to the
beneficiary of your choice.
Personal life insurance is a great asset to have for a large
number of reasons. When you buy life insurance your buying peace of mind but,
you must have your situation properly assessed and be sure that you are clear
on exactly what it will do for your family.
For other great financial resources and information click here.
As an independent insurance advisor and income protection
specialist for almost a decade, Ryan has been providing clients with customized
personal insurance and financial solutions through disability, life, critical
illness, long-term care, and other personal products while providing strategies
for hedging income and preserving wealth.
Article Source:
http://EzineArticles.com/expert/Ryan_D._Forrester/2093018
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