How To Read a Life Insurance Policy

How To Read a Life Insurance Policy

Surprisingly, one of the most common questions I get from people interested in buying a life insurance policy is how do I read a life insurance policy? I am amazed daily by how many people do not know the terms of their policy. Meaning how many years is the rate guaranteed. Which type of policy they have, either term life insurance, universal life insurance or whole life insurance.  Some people don’t even know what the face amount of the life insurance policy is. Meaning the amount of death benefit paid to the beneficiary upon their death. They all seem to remember fairly well how much the premiums are, especially if they pay for every month. Let’s look at how to read a life insurance policy.

When you open the policy the very first page of any meaning of the life insurance policy is the declaration page or dec page as it is known by your insurance agent. This page tells you almost everything you will need to know. The insurance company information, the face amount or death benefit, the type of policy, if term life insurance, the length of term which is usually 10-20-30 years guaranteed, the premium amounts including amounts after term expires and the issue date and the expiration date. You should always be familiar with the face amount, expiration date and amount you are paying in premium. If you are on a monthly bank draft, most insurance companies will not notify you about the rate increase. They just draft it. Take this client story for example.

I received a referral from a somewhat frantic and upset man we will call “John”. “John” had a big issue with his insurance company bank draft. It seems “John” purchased $1 million 10 year term life insurance 10 years ago online without the assistance of an insurance broker, because he felt he would get a better deal.  “John” was 40 years old when he found his current policy. He was paying $80.01 per month with a very well known nationally recognized life insurance company. It seems that somehow, the 10 years were up and “John” wasn’t paying attention until the life insurance company took out his new adjusted premium of $3,768 per month. Luckily, “John” was still healthy and qualified for another $1 million in life insurance that we needed to get issued a.s.a.p. as paying over $3,700 per month was not a feasible option. I hate to think what would have happened had “John” had a health issue. This is the importance of knowing these numbers on an annual basis or having a good life insurance broker that keeps up with this for you free of charge.

Another important part of the policy includes illustrations pages for cash value if a whole life or universal life insurance policy was purchased. These illustration pages can help project cash values which can be used in a tax free retirement program. They can also give cash loans in case of emergencies years later. However, most of these type policies do not have any cash value for the first few years as the money is used to fund the life insurance face amount first. These type policies are generally more expensive than their term life insurance cousins.

The next pages of the policy will include the names of beneficiaries or person that will receive the death proceeds upon the insured’s death. These can always be easily changed by contact the insurance company or insurance agent for the proper form. Also, be sure and read the policy exclusions and limitations that apply. Lastly, the back pages of the policy includes an item called amendments, a type of limitation or rate up. Any riders that may have been included such as accelerated death benefits. This means that if the insured is diagnosed with a terminal illness they may receive a percentage of the face amount for medical or personal expenses prior to death with the remaining paid to their beneficiary. It may include wavier of premium which means in case of a disability the premiums are waived. There could be a child rider which insures all children of the insured very affordably or a return of premium rider that returns all premiums paid and the insured lived past a specified time period.

Life insurance is a very affordable way to let your loved ones know how much you care about them even after your gone. I suggest you contact a licensed life insurance broker today for a free quote. Once you buy it, be sure and read a life insurance policy, now that you know how. Your loved ones will be glad you did.

Love is not about how much you say ‘I love you’ but how much you can prove it is true”—Unknown

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Tim Wilhoit is owner/principal of Your Friend 4 Life Insurance Agency in Nashville, TN. He is a family man, father of 3, entrepreneur, insurance agent, life insurance broker, salesman, sales trainer, recruiter, public speaker, blogger and team leader with over 26 years of experience in sales and marketing in the insurance and beverage industries.

10 Responses to How To Read a Life Insurance Policy

  • It has always amazed me how few Brokers or their Insureds have ever read a policy – life or other! When confronted on an issue, the reaction is generally “I didn’t know that”!

  • You are absolutley correct Phil. I realize reading insurance policy is about as exciting as watching paint dry, but it is a responsibility consumers and certainly agents have to take.

  • Love this – great idea!

    Sheryl Brown / @AshBrokerage

  • Sheryl, thank you for the kind words. I hope you find it useful with your team as well as clients.

  • So true thanks for the article. From the P&C side this type of situation happens very frequently…’why did my insurance company deny my claims because I let my girlfriend (with a suspended drivers license) borrow one of my spare cars for a year and she wrecked it’

    When consumer buy online they think they are so smart…until something bad happens and then they blame the insurance company!

  • Jack, you absolutely nailed it. Brokers are so important in every line of insurance. I have found that someone who doesn’t have time to meet with a broker and buys online, certainly doesn’t have time to read and understand their coverage either. Thank you for making that great point!

  • The longer I sell life insurance, and the more people I talk to, I am amazed at how many people have NO CLUE what policies actually are. How many people are totally uneducated about what things mean, and what they actually need. My own mother, who has had life policies for 30+ years recently told me she appreciated the knowledge base I’ve been able to give her, because up until this point, producers have just told her ‘this is what you need’ and shoved a standard term policy at her.

    We need to focus on having more conversations with people and getting down to what THEY need, instead of what we THINK they need.

  • Elise, you are correct. People really don’t take the time to understand their life policies. Not sure if it is too morbid or their lazy or busy, but it needs to happen every few years. You sound like a great agent doing what is right for your clients. I wish you much conitnued success! Thank you for sharing.

  • You example of John who bought online to save money was right on. While internet sales make millions of dollars for carriers – having a human being to help you is still important. Having a knowledgeable agent explain the coverage and communicate is still the best way. Humans communicating with humans trumps computers talking to computers.

  • Mary, you absolutely nailed it! Thank you for sharing.

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