You've made the decision to buy life insurance and you've learned about the types of policies available. Now it's time to look into companies, and either interview agents or investigate buying directly from an insurance company. Other decisions also will have to be made.
Researching a Company
Choosing an Agent
Choosing a Beneficiary
What to do With a Lapsed Life Insurance Policy
Replacing a Current Policy
Do some research about the company with which you may do business:
If you contact a rating service:
- Make sure the rating is current.
- Be sure you understand what the rating means. Factors such as profitability, investment risk, and diversity of investments are rated differently by each rating service.
- A company's rating can vary from one service to another. Look at ratings from several reliable services when evaluating a company.
- Be aware that not all companies choose to be rated by every service, since rating services usually charge a substantial fee for a comprehensive review.
- Avoid overreacting to slight variations in ratings -- for instance, between AAA and AA, or A+ and A. Slightly lower ratings may not indicate significant risk.
Collect the names of several agents through recommendations from friends, family, business colleagues and other sources. Then:
- Ask the agent before you meet which companies he or she represents and what types of products these companies sell.
- Make sure the agent you use is licensed to sell insurance. Licensing is a requirement in all states.
- Agents who sell variable life insurance products must be registered with the National Association of Securities Dealers and have additional state licenses.
- You also can look for professional designations that life insurance agents earn, such as Chartered Life Underwriter (CLU) and Life Underwriter Training Council Fellow (LUTCF). An agent who is also a financial planner may have other designations, such as Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), or Member of the Registry of Financial Planning Practitioners.
- If you are uncomfortable with the agent, or aren't convinced he or she is providing the service you want, interview another agent.
Choosing a beneficiary, and keeping that choice up-to-date, are important parts of purchasing a life insurance policy. The birth of a child or a divorce can affect your initial choice of who will receive the death benefit when you die. Review your beneficiary designation as new situations arise to make sure your choice is still appropriate.
- Consider naming a "contingent" or secondary beneficiary in case you outlive your first beneficiary.
- Think about the wording of your beneficiary designations. If you write "wife/husband of the insured" without using a specific name, an ex-spouse could receive the proceeds. On the other hand, if you have named specific children, any later-born children will be left out unless the beneficiary designation is changed.
If you have a lapsed life insurance policy, don't throw it away. It may be worth more than you think.
- You may be able to reinstate the policy. Most whole life policies can be reinstated within five years after lapsing if you pass a physical examination and pay the back premiums plus interest. Annual premiums could be considerably lower than those of a new, comparable policy.
- You can take a loan on the policy's accumulated cash value.
- You can return the policy to the company in exchange for its cash value if you decide you do not need the insurance protection. You may owe taxes on some of the cash value if the sum exceeds what you have paid in premiums.
Before you replace your current life insurance policy with a new one, consider that:
- If your health status has changed over the years, you may no longer be insurable at standard rates.
- Premium rates for your present policy usually will be lower than on a new policy of the same type.
- If you replace one cash value policy with another, the cash value of the new policy may be relatively small for several years. In fact, the new policy's cash value may never be as large as the original's.
- Before you switch from an old policy to a new one, investigate your options carefully and compare the two policies' costs and features. Talk to your life insurance agent before making a final decision.