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Nine questions to ask before buying life insurance

Buying life insurance can a daunting experience for most people. Numerous different types of policies, with minute variations in coverage and premiums, can be overwhelming. The jargon of insurance can be exceedingly confusing.
Susan Yates pic

Buying life insurance can a daunting experience for most people. Numerous different types of policies, with minute variations in coverage and premiums, can be overwhelming. The jargon of insurance can be exceedingly confusing. So it’s essential to get the right advice from the start. Here are nine key questions to ask an insurance agent/advisor or salesperson before you get anywhere near to signing on the dotted line.

1. How long have you been in the business?

We don’t have anything against those who are new to the insurance business. But many individuals who become licensed just don’t stay in the business. It’s a business notorious for its staff turnover. In some cases, as many as 80% of new hires are gone within two years. This situation leads to question 2.

2. If you leave, who will be responsible for my policy?

When a policy switches hands from the agent/advisor who sold you the policy to another agent/advisor because the first one has left, there is little motivation for the assuming agent to become actively involved. That’s because he or she already has their own clients to service, and the lion’s share of the commission has already been paid out. You can find yourself an “orphan” within the agency – and you may have to find a manager or other supervisor to get the service you want (and deserve).

3. How often do you personally commit to communicating with me?

You’ll get notices from the insurer that issued the policy on a regular basis, but life changes happen – and often your life insurance policy is not top of mind when they do. Divorce, death of a beneficiary, or the birth of a child may all impact an existing policy. The agent/advisor should check in with you on a regular basis just to ask whether there have been any changes and whether your policy reflects your current need for insurance.

4. Is there anything that will prevent the payment of the policy?

If you die the day after the policy is issued in an accident, your beneficiary will most likely receive the amount of life insurance that you bought. If you die that same day or you die during the first two years of the policy from a heart attack or other illness, the insurer is going to look at your health history and whether your disclosure on the policy application was complete and truthful. Similarly, if you declare yourself as a non-smoker and you do smoke, even occasionally, your insurer can challenge the payment of the death benefit. Finally, if death occurs by suicide during the first two years after the policy is issued, the death benefit will not be paid, but premiums will be refunded.

5. Can changes be made once the policy is issued?

This is a policy-specific question, and you should get a clear answer before signing up. Some policies, such as a universal life policy, are very flexible; others are not. A change to the beneficiary named in the policy is always easily accomplished. However, be aware that depending on circumstances, it can be more cost efficient to leave an existing policy in place (because it was issued when you were younger so premiums will be lower) and acquire a second policy to address new or changed needs. Explore the options with your agent/advisor and get a cost comparison.

6. Can I get this insurance elsewhere and at a better price?

There are cost variations between issuers, but cheapest is not necessarily best. Ensure you understand precisely what benefits your policy will provide and try to compare apples with apples. This can be a real challenge, because nuances between issuers for what appears to be the same policy can make comparison difficult. Also, ensure there is value to you in what you are paying for. There is no point in paying extra for a benefit you are unlikely to ever need.

7. Can I ask how much commission the agent/advisor will be paid?

You can ask, but the agent/advisor is not required to tell you the dollar amount. You can also ask if he or she is receiving other compensation such as a referral fee or sales incentive.

8. How do I cancel a policy? Will I get anything back?

If you complete an application, pay a premium, and then change your mind within 10 days, you will receive your premium back. If you have a term insurance policy that you no longer want or need, you can inform the insurer, or you can simply stop paying premiums. You will get nothing in return for the premiums you paid. If you have a whole life insurance policy, you should inform the insurer and follow up to see if the policy has built a cash value. If it has, you will receive this sum and the policy will be terminated. If you have a universal life policy, you might or might not have cash value. You will need to enquire. If you do, you will receive the amount in your account and the policy will end.

9. What’s my best approach towards a policy?

When you first meet with an agent/advisor, ask every question that comes to your mind and get answers you understand. If you do not understand, do not proceed. Life insurance should not be acquired in a rush. It’s a big commitment, and it deserves your time and attention. Make sure you read the application and the policy when it is first delivered – including all the fine print. And remember that even if you do not hear from the agent to enquire about changes in your life, if your circumstances change and the policy needs to change, take the initiative yourself for contacting your agent, his or her supervisor, or the insurer to make the policy right.

Courtesy Fundata Canada Inc. © 2016.Susan Yates is president of the Centre for Life Insurance and Financial Education (clifece.ca).This article is not intended as personalized advice.