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
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)
If you undertake risky activities like skydiving or car racing, you may face higher premiums or exclusions. The countries where you travel can also have an effect. Since insurance companies have different requirements, comparing can help you make a better decision.
If you start a risky behaviour such as smoking after your insurance is in place, you’re often covered without higher premiums.
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, that’s 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.
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 information you might not quite remember, such as the date and reason for your most recent visit to your doctor.
Understand the claims process
There are requirements to get claims paid, such as providing acceptable proof of death. There may 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. There may be more scrutiny if death occurred in another country or shortly after purchase.
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 — another reason to explore before you buy.
When you read and understand the fine print, there are fewer surprises and you get additional peace of mind.
Flickr: Alan Cleaver