It is important to use care when shopping for life insurance. The cost of insurance over the life of the policy can be significant and the benefits provided may be extremely important to your survivors. You should determine just what you need and then shop around so you can select a product that meets those needs at an affordable and competitive premium.
The first step in choosing life insurance is to decide how much coverage you need, how much you can afford to pay in premiums, and the type of policy that best meets your needs. Secondly, compare products offered by various companies, noting differences in benefits and costs. You can compare differences in the cost of life insurance by using the life insurance cost indexes. Much of this shopping and comparing can be done on the internet, and/or by contacting life insurance companies and agents. You can also contact the Department of Insurance if you have any questions.
Decide how much insurance you need
One way to decide how much life insurance you need is to figure how much cash and income your dependents will need when you die. Instead of receiving the paycheck or other income that you would normally bring home, upon your death, your family will receive an insurance benefit. It is up to the beneficiary or beneficiaries to decide how to use the policy’s death benefit. Tools that can help you decide how much insurance is needed can be found on insurance company and other financial websites, in insurance publications, etc. Life insurance agents can help with this as well.
Determine which type of insurance is right for you
Carefully review the different types of life insurance options available, and talk to your insurance agent or company for more information about the specific products they offer. Ask questions on anything you do not understand. If you still have questions, you can call the Department of Insurance at 855-408-1212.
Where to shop
You may already have an insurance agent you trust; if so, you may want to start there.
If you don’t have an agent already, you may want to see who is advertising in your area. Companies and agents often advertise in telephone directories, in the newspaper, on the radio or television or on the internet. These may be good starting points in your search.
When you’ve settled on an agent, make sure he or she is properly licensed to sell insurance in North Carolina. You can check on an agent's license by calling the NC Department of Insurance, or by using the online agent license search tool. Most agents are reputable professionals who are well trained in their area of expertise. Choose one with whom you feel comfortable and who will answer your questions fully and without rushing or pressuring you to make a decision.
As with any major purchase, it is recommended that you shop around to make sure you get the most for your money and to make sure you use a company you can trust. Companies must be licensed to conduct business in North
Carolina. To verify that an insurance company is properly licensed, you may contact the North Carolina Department of Insurance or use the online company license search tool.
Learn as much as you can
Because purchasing life insurance is an important financial decision, you should seek as much unbiased information as you can before you make a decision. Information is available to consumers from a number of sources. These sources include consumer publications, public libraries, consumer groups and your Department of Insurance.
The Department of Insurance does not rate or recommend insurance companies, but we can give you information about the company’s license, how long it has been in business and whether it has any complaints against it. You should also consider checking the financial ratings published by independent organizations such as A.M. Best, Standard & Poor’s, Moody’s Investors Service and others. These groups can tell you about the company’s financial strength, which is an important consideration when choosing a life insurance company. You should consider checking with at least two organizations to evaluate a company’s strength. The ratings for insurers can be found in most public libraries, by asking your agent or on the Internet. (NOTE: These organizations rate companies according to their present financial ability to pay claims, not by the quality of products offered or by past or future ability to pay claims.)
Policy Illustrations
Life insurance agents and companies may use something called a policy illustration that will show details of the policy you are considering, such as death benefits, cash values, dividends, etc. Some of these details may not guaranteed, but are based on some basic assumptions the company makes about the policy’s future performance. You can use these illustrations to help you compare products as you comparison shop.
Ask your agent to explain which figures are guaranteed and which are not. It is important to note that an illustration is only used to help you make a decision; it is not a policy.
Past policy performance is no guarantee of future policy performance. For this reason, it is generally not a good idea to buy a life insurance policy based solely on projected (non-guaranteed) future values. Remember, interest rates and costs are subject to change. Make sure you receive the complete sales illustration and copies of all materials used by the agent in the sales presentation, including those that show guaranteed values. If the
agent uses a computer to show you the illustration, make sure you get a printed copy to keep.
Here are additional questions to ask about the policy illustration:
• Is the illustration up to date? Is it based on realistic assumptions?
• Is the classification shown in the illustration appropriate for me (i.e. smoker/non-smoker, correct age and gender)?
• Which figures are guaranteed and which are not?
• Can the death benefit change due to changing interest rates or other factors?
• Are dividends (if the policy is participating) incorporated into the illustration?
• Can my out of pocket premium cost fluctuate?
• If the illustration indicates that my out of pocket premium may “vanish,” is it guaranteed that no additional out-of-pocket premiums will be necessary to keep the policy in-force?
Life Insurance Cost Indexes
After you have decided which kind of life insurance fits your needs, shop for a good buy. Hundreds of life insurance companies are licensed to sell insurance in North Carolina — that’s a lot of comparison shopping! Fortunately,
insurance companies are required to provide you with numbers to help you compare products and costs. These numbers make up the Surrender Cost Index and the Net Payment Cost Index. Using these indexes can help you find a good buy.
You should use these cost indexes only for comparing products that are similar. You can find the indexes in the policy summaries provided by the insurance company. LOOK FOR POLICIES WITH LOW COST INDEX NUMBERS. In order to compare the relative cost of similar policies, you should consider:
• Premiums
• Cash values
• Dividends
Cost indexes use one or more of these factors to give you a convenient way to make such comparisons. When you compare costs, an adjustment must be made to take into account that money is paid and received at different times. It is not enough to just add up the premiums you will pay and to subtract the cash values and dividends you expect to get back. These indexes take care of the math for you. Instead of having to add, subtract, multiply and divide many numbers yourself, you just compare the index numbers.
Life Insurance Surrender Index
If the cash value of a policy is most important to you, this is the index to use. It helps you compare the costs of similar policies that you plan to surrender for cash value at some future point in time, such as in 10 or 20 years.
Life Insurance Net Payment Cost Index
This index is useful if your main concern is about the policy’s death benefit rather than its cash value. It helps you compare the costs, at some future point in time, of similar policies for which you plan to keep rather than surrender.
How do I use cost indexes?
The most important thing to remember when using cost indexes is that a policy with a small index number is generally a better buy than a comparable policy with a larger index number. The following rules are also important:
• Cost comparisons should only be made between similar plans of life insurance. Similar plans provide essentially the same basic benefits and require premium payments for approximately the same period of time. The closer policies are to being identical, the more reliable the cost comparison will be.
• No one company offers the lowest cost for all types of insurance at all ages and for all amounts of insurance. It is important to get the indexes for the actual policy, insured age and amount which you intend to buy. Just because a “shopper’s guide” tells you that one company’s policy is a good buy for a particular age and amount, you should not assume that all policies offered by the company are equally good buys.
• The indexes aren’t the only thing you should consider. Just because a company has a slightly lower cost index than another may not mean it’s the best buy for you. Also consider such things as other policy features and the customer service you can expect from the company. These other considerations may make up for a small difference in indexes.
• Life insurance cost indexes apply to new policies and should not be used to determine whether you should cancel a policy you already have.
BEFORE YOU BUY
• Shop around. Compare plans from more than one company. Do not feel pressured to make a quick decision. Life insurance is a long-term contract.
• Verify that the agent and company you choose to do business with are licensed in North Carolina.
• DO NOT PAY CASH. When you purchase a policy, make your check or money order payable to the insurance company, NOT THE AGENT. Be sure to get a receipt.
• Make sure you fully understand any policy you are considering and that you are comfortable with the company, agent and product.
• Ask questions. Your life insurance policy represents a considerable investment and may significantly impact your family’s future.
• Determine the difference between guaranteed values and non-guaranteed projections.
• Ask your accountant about any potential tax consequences.
• Can you afford the initial premium? Buy only the amount of life insurance you need and can afford. If the premium increases later, can you still afford it? It may be very costly if you quit during the early years of the policy.
• Do not sign an insurance application until you review it carefully to be sure all the answers are complete and accurate.
AFTER YOU PURCHASE
• Keep in mind that you have a minimum 10-day “free look” period on new policies and a minimum 20 day “free look” period on replacement policies, in case you change your mind. If you cancel during the free look period, the company must return your premium without penalty.
• Periodically review your policy to make sure it continues to meet your insurance needs.
• Provide your beneficiaries with your agent’s name and a photocopy of your policy.
• Tell your beneficiaries where your policies are located.
• Your life insurance policy should be kept in a safe place with your other important documents, such as a safe deposit box or fire proof safe. The name of the company and policy number should be kept in a safe place (at a separate location from your original policy) in case the policy is misplaced or lost.
• Make sure the insurance company always has your current address.