Life insurance companies earn 10% premiums on the policies they sell you. Given their immense sophistication, and the fact that they make the most profit when they don’t have to provide a death benefit to someone, it is strongly in your interest to protect yourself from doing something defective that thwarts your intentions.
Set Up A Separate Bank Account To Automate Your Life Insurance Premium Payments. Guess what, if you miss a payment, your policy will lapse and then terminate. Some state law requires that a notice of lapse be mailed to you before your policy terminates.
But here’s the problem. The moment when you’re least likely to make premium payments also has a tendency to correlate to the time when you’re more senior in age and the Grim Reaper approaches. You do not want to dutifully contribute for years and years and then suffer an extended illness that causes your policy to lapse. To offset this risk, you can create a separate bank account that is used for the sole purpose of making premium payments.
And then what you do is gradually overfund it. Let’s say your monthly premium is $60 per month. What you should do is transfer $75 to this bank account each month to make payments. After doing this for three years, you will have built up $540 of excess. If something were to happen that caused you to stop contributing, you have “bought yourself” nine months of security in which the premium continues to get paid without your active involvement. The longer you execute the plan, the more leeway for lapse you buy yourself.
Otherwise, if your policy permits you to have an automatic premium loan provision, then the cash value can be used to continue coverage until the value of the required premium payments exceeds the amount of cash value that has accrued.
Name a contingent beneficiary. In research of approximately 11% of life insurance policies, the named beneficiary for an insurance policy dies before the insured person. In these scenarios, there are three default options. If you had named multiple beneficiaries, then the proceeds from your life insurance policy is split between the others named. If there was only one beneficiary, then the money reverts to your estate and is distributed according to your will. And if you die, and then your beneficiary dies before the life insurance policy is distributed, the money goes to the estate of your beneficiary.
The risk here is that your beneficiary dies before you and then the beneficiaries in your will are different from who you would like to receive the insurance death benefit. You can easily side-step this fallout by naming a contingent beneficiary in your plan. Agents are not required by law to ask about contingent beneficiaries, and there is no extra compensation for them to do so, making this an aspect of insurance law that gets short shrift but has an outside chance of severely frustrating your intentions.
Receive as many explanations of the policy in writing from your agent as possible. If you have read information that tells you the specific terms in the life insurance policy are binding, that information is factually correct. However, there is one exception. If an agent misrepresents some aspect of the policy to you, then that is controlling over the provisions of the policy. Otherwise, there would be no penalty for engaging in fraud.
However, the catch is that you have the burden of proof. Well, if an insurance company makes an oral misrepresentation to you, they are not going to admit it years later. But if the misrepresentation is in writing, then you will be able to satisfy your burden of proof. Ask your agent clarifying questions via e-mail.
Do not put incorrect information anywhere on your policy. Insurance companies are more than happy to put themselves in a position to collect monthly premiums from you. They won’t fight you too much on that! However, when it is time for them to pay up, the intensified scrutiny begins.
Forums are filled with people who think they are “getting away with one” because they have been paying lower premiums for years about some non-disclosed fact. Well, you don’t get away with one until the payout happens, and I don’t think you should provide any reason for a large lump-sum payment to be denied. Investigations happen. Do not lie about smoking! Anything that would meaningfully affect your life insurance rates must be accurately disclosed.
Don’t fall for artificial deadlines during the buying stage. It is in your best interest to comparison shop with other life insurance companies to find the best policy. Of course, that is in tension with the person who is trying to sell you a policy right now.
If you receive any information from an agent saying something like “Let me know by Monday” or “Ten days to make a decision”, then you should know that this is an artificially created term to induce you to buy a policy immediately. Know that they need you more than you need them, and they will still negotiate with you after their self-created bargaining deadline. Maybe I’m a jerk, but when someone tries to rush me into making a meaningful decision, I deliberately take longer. Due diligence is a tool that shouldn’t be forfeited just because someone else demands it.
The life insurance policy is the greatest asset someone possesses outside of their home. You should recognize the areas where the insurance companies have superior power, and you should make sure that you honestly comply in such circumstance. And when you have the power, you should move sedulously to make sure that you secure a policy that is right for you.