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Life insurance fine print – why you need to read it

A life insurance policy is a legal contract so it’s very important you know what you’re being offered before you buy.

Take the time to read the document and ask questions until you’re satisfied that you understand. Here’s what you should look for:

Find out what’s excluded in the life insurance fine print

Your insurance policy explains what’s covered and what’s excluded. For instance, you should find out what happens if:

  • you miss a premium payment
  • you want to cancel your coverage
  • your death occurs by suicide or while intoxicated
  • you want to extend coverage (for example, term life insurance usually gives you the right to convert to permanent coverage without additional underwriting for a limited period)

Beware of risky behaviour

If you perform any high-risk activities like skydiving or car racing, you may face higher premiums or added exclusions. The countries where you travel can also have an effect. Since insurance companies have different requirements, comparing life insurance quotes can help you make a better decision.

If you start a bad behaviour with serious repercussions such as smoking after your insurance is in place, you’re often covered without higher premiums, but this could void your contract if you read your life insurance fine print.

What can void the contract

The insurance company can challenge the validity of your policy anytime for fraud and during the contestability period (typically two years). A mistake, such as giving the wrong date of birth, can usually be corrected.

However, if you smoke but say you don’t, you’re committing life insurance fraud. You may consider yourself a non-smoker because you smoke the occasional cigar or use e-cigarettes. Since an insurer’s definitions prevail, be sure to meet their criteria.

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Check the underwriting requirements

Insurance companies review your application during a process called underwriting. Since the criteria differ by insurer and increase with the amount of coverage, ask to see the requirements before you apply. For example, some insurers may require a slow-to-get attending physician’s statement (APS) while others do not.

Insurance companies may add additional requirements based on what they find.

Understand the application process

Once you have decided what you want to buy, you’ll have to apply for coverage. The application form could be dozens of pages long, though some sections may not apply to you. Be sure to answer each question accurately.

You can request an application form for review in advance. That gives you time to gather the information you might not remember, such as the date and reason for your most recent visit to your doctor.

Read the life insurance fine print of the claims process

Before a claim pays out, there are often requirements you must fulfill such as a proof of death. There may also be a timeframe for submitting claims. You can request and review a claims form before you buy.

The insurance company investigates claims before paying benefits. For instance, If someone dies in another country, or shortly after a new policy takes effect, prepare to face scrutiny. The better you understand the claims process, the easier it will be in what could be a stressful time.

Changing your mind

Your insurance policy typically comes with a 10-day “free look.” During this period, you have a right of rescission. That means you can return the policy for a refund, no questions asked.

You can also cancel (or “surrender”) your coverage anytime afterwards. There may be penalties and taxes, though which is another reason to explore the life insurance fine print before you buy.

When you read and understand the life insurance fine print, there are fewer surprises and you get additional peace of mind.