Life Insurance

10 Things You Should Know Before Purchasing Life Insurance

Talk to an insurance agent, he or she can help you evaluate your insurance needs and give you information about available policies.

How much of the family income do you provide? Does anyone else depend on you financially? How will your family pay final expenses and repay debts after your death? Based on the answers to these questions, decide how much coverage you need, for how long and what you can afford to pay. You want to make sure that you buy enough life insurance to cover the financial effects of an unexpected or untimely death.

If you already have a life insurance policy, do not cancel it until you have received the new one. You then have a minimum period to review your new policy and decide if it is what you want. Keep in mind that you may not have to cancel your current policy. You may be able to change your policy to get the coverage or benefits you want now.

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. Cash Value life insurance may be one of several types: whole life, universal life and variable life. Your choice should be based on your needs now and in the future and what you can afford.

Before purchasing a life insurance policy, be sure that you can handle the premium payments. Can you afford the initial premium? If the premium increases later, will you still be able to afford it?

How quickly does the cash value grow? Some policies have low cash values in the early years that build quickly later on. Other policies have a more level cash value build-up. Ask your agent for a year-to-year display of values and benefits.

It is important that you do not drop one policy and buy another without a thorough study of the new policy and the one you have now. Replacing your insurance policy may be costly.

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 may 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 a certain age.

Do premiums or benefits vary from year to year? How much do the benefits build up in the policy? What part of the premiums or benefits is not guaranteed? What is the effect of interest on money paid and received at different times on the policy? These are all questions that you should be able to answer by reading your policy thoroughly. Your agent can help you understand things that are unclear.

How will inflation affect your future needs? Do you need more insurance when your family size increases? Review your policy with your agent every few years to keep up with changes in your income and needs.

The Utah Life & Health Insurance Guaranty Association

Life insurance benefits are not guaranteed by any government agency. However, companies licensed to sell life insurance, health insurance, and annuities in Utah are required by law to be a member of the Utah Life & Health Insurance Guaranty Association (ULHIGA). If a company licensed in Utah becomes insolvent and is unable to pay claims, the law requires ULHIGA to pay some of the claims.

The benefits are for residents of Utah; if you move to another state, you may be eligible for benefits from that state’s guaranty association. The caps are $200,000 for net cash surrender value, $500,000 for death benefits, and $250,000 for annuities.

See the Notice that is required to accompany an insurance policy for specific details.

ULHIGA Contact: Ted Lewis — (801) 320-9955 or tlewis@ulhiga.org

What Type of Life Insurance Is Right For You?

All life insurance policies have one thing in common: They’re designed to pay money to “named beneficiaries” when you die. The beneficiaries can be one or more individuals or even an organization.

In most cases, policies are purchased by the person whose life is insured. However, life insurance policies can be taken out by spouses or anyone who is able to prove they have an insurable interest in the person. If you buy insurance on someone else’s life (a spouse, for example), the policy pays when that person dies.

Top Considerations

There are many different types of life insurance policies — you should choose a policy with features that fit your individual needs. Based on their unique characteristics, it is possible to identify several distinct types of life insurance coverages. However, they fall into two classes of life insurance products: term and cash value policies.

Term life insurance is a policy that is purchased for a period of time (a term). The policy pays money to the named beneficiaries if the insured dies during the term. Term life insurance is intended to provide lower-cost coverage for a specific period.

Term life policies may include a provision that allows coverage to continue (renew) at the end of the term, even if your health status has changed. However, those premiums may be higher than the original policy. Ask what the premiums will be before you renew. Also, ask if you lose the right to renew at a certain age. If the policy is non-renewable you will need to re-apply for coverage at the end of the term.

A cash value life insurance policy is different because you can keep it for as long as you need it. These policies also have savings or investment features, which make it possible for policy owners to get money from the policy while they’re still alive. Whole life, universal life, and variable life are types of cash value policies.

Everyone’s financial situation is different. First, decide if life insurance is even necessary. If it is, here are some questions to ask.

Ask yourself:

Ask the agent:

How to Protect Yourself

If you already have life insurance, it’s important to compare your current policy with any new policy you might consider. Also, keep in mind that any changes in your health may affect your ability to get a new policy or the premium that you’ll pay. Don’t cancel a current policy until you get a new one.

Before you buy a life insurance policy, be sure you can afford the premium. The premiums for many life insurance policies are sensitive to changes in the company’s investment earnings, claim costs, and other expenses. Be sure to ask what the highest premium might be to keep your coverage.

Does your policy have a cash value? In some cash value policies, the values are low in the early years but build later. In other policies, the values build up gradually over time. Ask your insurance agent, financial advisor, or insurance company representative for an illustration showing future values and benefits. Most term policies have no cash value.

Things to Remember

Get More Information

For more in-depth information on life insurance see our Life Insurance Buyers’ Guide.

Facts of Life: Tips for Consumers

Although consumers widely recognize the importance of life insurance in financially protecting their families, most need significant help in determining the type and amount of coverage appropriate at different life stages, according to the National Association of Insurance Commissioners (NAIC), of which Utah is a member. Acknowledging September as Life Insurance Awareness Month, the NAIC has assembled useful information about the subject on its Consumer Education website (https://content.naic.org/consumer.htm opens in a new tab ) to help educate consumers about if and when to purchase, increase or reduce their life insurance at different stages in their lives.

Consumer research conducted by the NAIC earlier this year indicates:

The Basics: What All Consumers Should Know About Life Insurance

There are three life insurance basics that all consumers should consider:

Life Insurance Tips for Each Life Stage

Following are tips to consumers focused on their likely needs in different life stages. For example:

All consumers should remember to review their life insurance policy every year before paying their premiums and update it to reflect any major changes in their lives — like marriage, the birth of a child, divorce or the death of a spouse. Before signing up for any kind of insurance, consumers should check with our Health & Life Division to make sure the company offering the policy is legitimate, solvent, and authorized to do business in Utah.

Lost Life Insurance Policies

There is no national or state registry of insurance policies issued by life insurance companies. If you believe someone was insured but you are unable to locate the policy and don’t know the full name of the company, the department suggests the following:

The National Association of Insurance Commissioners has a Life Insurance Policy Locator Service that may be able to help in your search. Visit https://eapps.naic.org/life-policy-locator/#/welcome opens in a new tab for more information about the service.

Out-of-State Applications

It has recently come to our attention that some Utah producers have taken Utah residents across state lines into neighboring states to have them sign applications for insurance policies or annuity contracts that are not available in Utah, and which were not filed with the Department. Producers have reportedly informed some of the applicants that the policies or contracts are not available in Utah and therefore the application must be signed in a neighboring state in order to have a policy or contract be issued. In some instances, the insurance company then issued the policy or contract to the Utah resident on the neighboring state’s policy form which had not been filed in Utah.

Please be aware that per Utah Code Annotated (UCA) Section 31A-21-201 opens in a new tab , a form may not be used, sold, or offered for sale unless the form has been filed with the commissioner. Additionally, per UCA Section 31A-21-101 opens in a new tab , this requirement applies to all insurance policy and annuity contract forms, applications, and certificates that are: “(a) delivered or issued for delivery in this state; (b) on property ordinarily located in this state; (c) on persons residing in this state when the policy is issued; and (d) on business operations in this state”. Therefore, insurance companies and producers who use, sell, or offer for sale to persons residing in Utah, an insurance policy or contract that has not been filed in Utah, and is thus not available in Utah, do so in violation of Utah insurance law, even when the application was signed in another state.

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