LIFE INSURANCE
Buyer’s Guide
© 2018 NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS
Prepared by the National Association of
Insurance Commissioners
As part of our state-based system of insurance regulation in the United States,
the National Association of Insurance Commissioners (NAIC) provides expertise,
data, and analysis for insurance commissioners to eectively regulate the industry
and protect consumers. The U.S. standard-setting organization is governed by the
chief insurance regulators from the 50 states, the District of Columbia and ve U.S.
territories. Through the NAIC, state insurance regulators establish standards and
best practices, conduct peer reviews, and coordinate regulatory oversight. NAIC
sta supports these eorts and represents the collective views of state regulators
domestically and internationally. For more information, visit www.naic.org.
National Association of Insurance Commissioners
1100 Walnut Street, Suite 1500
Kansas City, MO 64106-2197
(816) 842-3600
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Before you
buy life
insurance...
UNDERSTAND WHAT LIFE INSURANCE IS
Life insurance pays a death benet if you die while the policy is in eect, in exchange
for premiums you pay before your death. You can use the death benet to protect
against nancial hardships such as loss of your income, funeral expenses, medical or
nursing care expenses, debt repayments, and child care costs after your death. You
can get information from www.naic.org/consumer/life_insurance.
IF YOU NEED LIFE INSURANCE, DECIDE HOW MUCH
COVERAGE TO BUY
How much life insurance to buy depends on the nancial needs that will continue
after your death. Examples include supporting your family, paying for child(ren)’s
education, and paying o a mortgage. Some questions you may want to ask about
your own needs include:
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• Does anyone depend on me nancially?
• How much of the family income do I provide?
• How will my family pay my nal expenses and repay debts after my death?
• Do I want to leave money to charity or family?
• If I have life insurance through my employer, is it enough to meet my nancial
obligations?
The answers to these questions can help you decide how much coverage you need.
An insurance agent, nancial advisor, or insurance company representative can
help you evaluate your insurance needs and give you information about available
policies.
IF YOU ALREADY HAVE LIFE INSURANCE, ASSESS YOUR
CURRENT LIFE INSURANCE POLICY
It’s important to compare your current policy with any new policy you might buy.
Keep in mind that you may be able to change your current policy to get benets you
want. Also, know that any changes in your health may impact your ability to get a
new policy or the premium you’ll pay. Don’t cancel your current policy until you get
the new one.
Also, while you may have free or low-cost life insurance through your employer, the
death benet usually is less than you need. And if you leave the employer, you may
not be able to take this coverage with you.
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COMPARE THE DIFFERENT
TYPES OF INSURANCE
POLICIES
There are many types of life insurance
policies. You should choose a policy with
features that t your individual needs.
Some things to consider are:
TERM VS. CASH VALUE: Term
insurance is intended to provide lower-
cost coverage for a specic period of
time (“a term”). If you want coverage for
a longer period of time, such as for your
lifetime, cash value insurance may be
more cost eective. Most term policies
don’t build up cash values that you can
use in the future.
RENEWABLE TERM VS.
NONRENEWABLE TERM: Most term life
insurance coverage can be continued
(“renewed”) at the end of the term, even
if your health has changed. If you renew
a term policy, the new premiums are
higher. Ask what the premiums will be
before you renew the policy. Also ask if
you’ll lose the right to renew the policy
at a certain age. A nonrenewable term
policy can’t be continued. You’ll have to
apply for a new policy if you still want
coverage.
WHOLE LIFE VS. UNIVERSAL LIFE:
Whole life and universal life insurance
are two types of cash value insurance.
A key dierence between the two is
how you pay for the coverage. You
typically pay premiums for whole life
insurance according to a set schedule.
In a universal life policy, you can choose
a exible premium payment pattern as
long as you pay enough to keep your
policy in force.
VARIABLE LIFE VS. NON-VARIABLE
LIFE: The investments you will choose
(such as stock and bond funds) in a
variable life policy directly impact your
cash value. These policies have the
greatest potential to build cash value
but also the greatest risk of losing cash
value. Non-variable life policies often
have guaranteed minimums for some
features (interest or cash value, for
example) but not all. Non-variable life
policies also have less potential to build
cash value than variable life policies.
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BE SURE YOU CAN AFFORD
THE PREMIUM
Before you buy a life insurance policy,
be sure you can pay the premiums.
Can you aord the initial premium? If
the premium increases later, will you
still be able to aord it? The premiums
for many life insurance policies are
sensitive to changes in the company’s
investment earnings, claims costs, and
other expenses. If those are worse than
expected, you may have to pay a much
higher premium. Ask what might be the
highest premium you’d have to pay to
keep your coverage.
UNDERSTAND THE
APPLICATION PROCESS
You can apply for life insurance through
life insurance agents, the mail, and
online. In addition to basic information,
such as your name, address, employer,
job title, and date of birth, you’ll be
asked for more personal information.
Depending on the type of policy, the
insurer may require you to see a doctor,
answer health-related questions, or
have a medical professional come to
your home or oce to assess your
health. Usually a policy that doesn’t
require detailed health information will
cost more and provide less coverage
than one that does.
It’s important to tell the truth on the
application. The insurance company
will check your answers so review
the application before you sign. If the
insurance company discovers false
statements on your application after
it issues your policy, it could reduce or
cancel your coverage.
CHOOSE A BENEFICIARY
A beneciary is the person(s) or
organization(s) you name to receive your
life insurance policy’s death benet.
You’ll need to know the Social Security
or tax identication number for all
beneciaries. Experts advise you not
to name a minor child as a beneciary.
Insurance companies won’t pay a minor.
Instead, consider leaving the money to
your estate or trust.
EVALUATE THE FUTURE OF
YOUR POLICY
Does your policy have a cash value? In
some cash value policies, the values
are low in the early years but build later
on. In other policies the values build
up gradually over the years. Most term
policies have no cash value. Ask your
insurance agent, nancial advisor, or an
insurance company representative for
an illustration showing future values and
benets.
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After you
buy life
insurance...
READ YOUR POLICY CAREFULLY
After you carefully read your policy, you should be able to answer the following
important questions:
• Is your personal information correct?
• Do premiums or policy values vary from year to year?
• What part of the premium or policy value isn’t guaranteed?
• How will the timing of money paid and received aect any interest the policy
might earn?
Your insurance agent, nancial advisor, or an insurance company representative can
help you understand anything that isn’t clear.
If you’re not satised with your new policy, you can return it for a full refund within
a certain period, usually 10 days after you receive it. The review period usually is
stated on the rst page of the policy.
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REVIEW YOUR LIFE
INSURANCE POLICY EVERY
FEW YEARS
Review your policy with your insurance
agent, nancial advisor, or an insurance
company representative every few years
to keep up with changes in your policy
and your needs.
• Have the premiums or benets
changed since your policy was
issued?
• Do the death benets still meet your
needs?
• Do you need more or less coverage
after life events, such as birth,
adoption, marriage, job change,
death, or divorce?
The insurance company can provide
policy statements and illustrations
to help with this review. As the policy
owner, you can change beneciaries
at no cost. Be sure to review your
beneciaries every few years, especially
after major life events that aect your
life insurance needs.
Notes...
