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When you buy life insurance, you want coverage that fits your needs. First, decide how much you need – and for how long – and what you can afford to pay. Keep in mind the major reason that you buy life insurance is to cover the financial effects of unexpected or untimely death. Life insurance can also be one of the many ways you plan for the future. Next, learn what kinds of policies will meet your needs and pick the one that best suits you. Then, choose the combination of policy premium and benefits that emphasizes protection in case of early death, or benefits in case of long life, or a combination of both.
It makes good sense to ask a life insurance agent or company to help you. An agent can help you review your insurance needs and give you information about the available policies. If one kind of policy does not seem to fit your needs, ask about others.
This page provides only basic information. You can get more facts from a life insurance agent or company, the Internet, or from your public library.
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If you are thinking about dropping a life insurance policy, here are some things you should consider:
In all cases, if you are thinking of buying a new policy, check with the agent or company that issued you the one you have now. When you bought your old policy, you may have seen an illustration of the benefits of your policy. Before replacing your policy, ask your agent or company for an updated illustration. Check to see how the policy has performed and what you might expect in the future, based on the amounts the company is paying now.
Here are some questions to ask yourself:
As you figure out what you must have to meet these needs, count on the life insurance you have now, including any group insurance where you work or veteranʼs insurance. Donʼt forget Social Security and pension plan survivorʼs benefits. Add other assets you have: savings, investments, real estate, and personal property. Which assets would your family sell or cash in to pay expenses after your death?
You may be thinking of buy a policy where cash values, death benefits, dividends or premiums may be based on events or situations the company does not guarantee (such as interest rates). If so, you may get an illustration from the agent or company that helps explain how the policy works.
The illustration will show how the benefits that are not guaranteed will change as interest rates and other factors change. The illustration will show you what the company guarantees. It will also show you what could happen in the future.
Remember that nobody knows what will happen in the future. You should be ready to adjust your financial plans if the cash value doesnʼt increase as quickly as shown in the illustration. You will be asked to sign a statement that says you understand that some of the numbers in the illustration are not guaranteed.
All policies are not the same. Some give coverage for your lifetime and others cover you for a specific number of years. Some build up cash values and others do not. Some policies may offer other benefits while you are still living. Your choice should be based on your needs and what you can afford.
There are two basic types of life insurance: term insurance and cash value insurance. Term insurance generally has lower premiums in the early years, but does not build up cash values that you can use in the future. You may combine cash value insurance with term insurance for the period of your greatest need for life insurance to replace income.
Term insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the largest insurance protection for your premium dollar. It generally does not build up cash value. You can renew most term insurance policies for one or more terms even if your health has changed. Each time you renew the policy for a new term, premiums will be higher. Ask what the premiums will be if you continue to renew the policy. Also ask if you will lose the right to renew the policy at some age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year. At the end of that time you may need to pass a physical examination to continue coverage, and premiums may increase.
Cash value life insurance is a type of insurance where the premiums charged are higher at the beginning than they would be for the same amount of term insurance. The part of the premium that is not used for the cost of insurance is invested by the company and builds up a cash value that may be used in a variety of ways.
Whole life insurance covers you for as long as you live if your premiums are paid. You generally pay the same amount in premiums for as long as you live. When you first take out the policy, premiums can be several times higher than you would pay initially for the same amount of term insurance. But they may be smaller than the premiums you would eventually pay if you were to keep renewing a term policy until your later years.
Universal life insurance is a kind of flexible policy that lets you vary your premium payments. You can also adjust the face amount of your coverage. Increases may require proof that you qualify for the new death benefit. The premiums you pay (less expense charges) go into a policy account that earns interest. Charges are deducted from the account.
Variable life insurance is a kind of insurance where the death benefits and cash values depend on the investment performance of one or more separate accounts, which may be invested in mutual funds or other investments.
After you have decided which kind of life insurance is best for you, compare similar policies from different companies to find which one is likely to give you the best value for your money. A simple comparison of the premiums is not enough. There are other things to consider:
Once you have decided which type of policy to buy, you can use a cost comparison index, available from life insurance agents and companies, to help you compare similar policies.
A viatical settlement allows a terminally ill person to receive a portion of his or her life insurance benefits while he or she is still alive. Viatical settlement companies purchase life insurance policies from people diagnosed with terminal illnesses at a discount of face value. The insured receives a lump-sum payment. The company, which becomes the owner and beneficiary of the policy, is required to pay all future premiums. In return, the company collects the full amount of the policy when the insured dies. Contact a licensed viatical broker or viatical settlements provider for information about viatical settlements. The Mississippi Viatical Settlements Act of 2000 requires disclosure of many facts as aspects surrounding viatical settlement transactions, including the financial consequences of selling your life insurance policy and possible alternatives. Consult your own financial advisor, who knows your personal financial needs. Complaints and inquiries regarding viatical settlements should be directed to the Mississippi Secretary of State's Office's Business Services Division at 601-359-6367 or 800-804-6364.
Insurance companies also provide annuities, which at its most basic, are interest-bearing contracts that ensure an income stream. A payment or series of payments are made to an insurance company, and in return, the insurer agrees to pay an income (the invested capital plus interest on the outstanding balance) for a specified time period. Annuities can take many forms but have a couple basic properties: an immediate or deferred payout, with fixed (guaranteed) or variable returns. Consequently, different annuity types can resemble Certificate of Deposits (CDs), pensions or even investment portfolios. Annuities are most often bought for future retirement income, and can pay an income that can be guaranteed to last as long as you live. Depending on your age, an annuity may or may not be appropriate.
Life insurance companies must minimize the risk of what is called disintermediation. This happens when annuity holders seeking higher-yielding alternatives withdraw funds prematurely (often during periods of increased interest rates), and force companies to pay these surrenders by liquidating investments in an unrealized loss position. Insurers can protect themselves by matching an interest-sensitive liability portfolio with the asset portfolio, and by selling a mix of low-risk and high-risk products.
Because variable annuities contain a return linked to equity markets, they are regulated by the U.S. Securities and Exchange Commission (SEC). Fixed annuities are not securities, and as such, are not regulated by the SEC. Though it depends on the features, the typical equity-indexed annuity is not registered with the SEC.
Group annuities differ slightly from individual annuities in that the payout is dependent upon the life expectancy of all the members of the group rather than the individual. Many company retirement plans, such as 401(k) plans, are annuities that will pay a regular income to the retiree. Tax-deferred annuity plans – 403(b) and 457 plans – also are used widely by public-sector and non-profit workers.
To find out if an annuity is right for you, think about what your financial goals are for the future. Analyze the amount of money you are willing to invest in an annuity, as well as how much of a monetary risk you are willing to take. You shouldn’t buy an annuity to reach short-term financial goals. When determining whether an annuity would benefit you, ask yourself the following questions:
When it comes to annuities, inappropriate sales practices can occur in many ways and come from a variety of sources. Here are a few ways to protect yourself:
Watch for the following red flags, which serve as warnings of possible deceptive annuity sales practices:
If you suspect you’ve been a victim of deceptive sales practices, or you have a specific question and can’t get the answers you need from an agent or the insurance company, contact the Mississippi Insurance Department. Please see our Request Assistance Page for information on how to contact us.
If we can be of assistance, please see the Request Assistance Page for information on how to contact us.
