Title: Life Insurance Tips - How Does a Whole Life Insurance Policy Work?
1Insurance Policies
2Life Insurance Tips - How Does a Whole Life
Insurance Policy Work?
3Introduction
If you have ever read your life insurance policy,
only to have more questions than when you began,
you are not alone. What does it all mean?
Incontestability clause, exclusions and such,
just make a person want to get to the bottom of
the question... will the company pay the policy
off when I die?
4What is a life insurance policy anyway?
A life insurance policy is a legal contract
between the person who buys the policy (called
the insured) and the company that issued to
policy (called the insurer). It will pay cash to
a stated beneficiary when the insured dies. When
a person first applies for life insurance, they
are asked a series of questions to see if they
qualify for the type of insurance they are
applying for. Afterward, they are given a
Conditional Receipt which is a temporary
insurance policy while the application is in the
underwriting department and waiting for results
for any exams that were ordered. This receipt may
be used in case of death occurs before the actual
policy is delivered, so make sure your agent
reviews this with you. Once the policy is issued
and the agent reviews the kind of policy issued
and what's included, he or she will explain the
terms of the policy. Since a life insurance
policy is a legal contract, there are some
provisions or terms contained in it that you
should know about. Some important ones are
5provisions or terms contained in it that you
should know about. Some important ones are
Make sure there is a copy of the actual
application in the policy. You don't want
anything you said to be misstated or written in
error by your agent, and if there is an error in
the application, ask your agent how it can be
straightened out. Because no one can change the
policy once it has been issued, this is usually
handled by an amendment. Know when your payments
are due. This is usually done on a monthly basis,
with lower premiums being drafted from a bank
account. Some other payment options are yearly
and every six or three months. To help protect
you against an accidental lapse of the policy,
there is a grace period of 30 days after the due
date. But to stay safe, make policy premiums on
time every months. The period of
incontestability prevents the insurer from
denying the claim because of statements made in
the application after the policy has been issued.
Basically it says that if the insured dies within
the policy's first two years after issue and
there is an untrue statement found on the
application, the insurer can deny paying the
claim. After the first two year period of the
policy, the insurer is fully liable to cover the
insured no matter what is on the application.
6Tell your true age. Some people think that if
they claim they are a younger age, they'll get a
cheaper rate. Well, if they are in fact the
younger age, this logic holds true. But not so if
they are older. If this happens, the insurer will
correct this whenever a claim is made and the
adjustment will come out of the beneficiary's
proceeds. There are some things that a policy
will not cover and are excluded from the policy.
The insurer makes this clear at the time the
application is signed. These are individuals who
serve in the military, who fly aircraft and who
work in hazardous occupations or
hobbies. Settlement options are the ways the
insurance company will pay out the proceeds of
the policy. The company usually pays a lump sum
to the person listed as your beneficiary.
However, there are options that you can choose
from. You can choose to receive a fixed-period of
installments, fixed amount of installments,
income for life, or interest only payments. Ask
your agent for details and if one of these
options are right for your family situation.
7Non-forfeiture Options.
Permanent life insurance policies have cash
values, money that grows over time. This mean
there are certain guarantees built into the
policy that cannot be forfeited by the insurer.
With these options you can borrow against the
cash values built in the policy, use the values
to convert to term insurance, or reduce the face
amount of the policy to pay it up. There are many
more provisions and options that are too numerous
to mention here. But these few should arm you
with enough information to discuss your insurance
needs with your agent, and for your agent to
compile a thorough financial plan. More
importantly, you now have an idea of how a life
insurance policy works.
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