questions to ask before you sign

By Darrel Richter

Many people buy as many life insurance policies that fit in their budgets and assume they're covered for every possible issue that could come up. But that's not necessarily the case. If you don't read your policy carefully before you sign on the line, you might end up being disappointed in the end.

Ask why the exclusions are in your policy. Rather than worrying about whether your life insurance company will try to rip you off when you make a claim, ask about the exclusions about which you're concerned. There are reasons for the exclusions. If the policy would guard against every risk, the price of the policy would be outrageous. Also think of it this way: exclusions keep you from buying coverage you don't need.

If there's part of your policy that doesn't make sense, ask about it. Sometimes policies are worded very oddly and are difficult to read. Make sure you ask your agent what a particular clause means. If it still doesn't make sense to you, remember that courts generally look favorably toward the consumer's side of ambiguous insurance contracts.

Ask to have it put in writing. If there's something about your insurance policy that is unclear, ask the company you're buying it from to put a verbal clause in writing. Having it in writing gives you peace of mind and makes sure there is no question about what's covered and what's not.

Know when your policy expires. If you are purchasing a term policy, know exactly when your coverage begins and ends. Many renewable term policies offer a grace period (typically 31 days) after the expiration date if the next year's premium is not paid on time. But some policies are not clear on this point. Make sure yours is.

Know whether your policy is convertible and for how long. Your policy likely has a conversion clause. That's the line on your agreement that discusses how you may exchange your renewable term policy for another type of policy without evidence of insurability. You want to find out how for how many years your policy is convertible. And if your policy is convertible, you want to make sure you know and understand the rules.

Find out your premium rate. Some companies have variable rates for premiums. Make sure your policy outlines exactly how much you'll be expected to pay and when those payments will be due. If the policy includes variable rates, make sure you know how much you'll owe.

Find out if your policy is renewable. Many policies allow you to renew them at the end of the terms without having to re-qualify. Many other policies allow you to renew for a set number of years without having to re-qualify. You should make sure you fully understand at what age you'll be expected to re-qualify for the policy.

Find out how the loan clause of your policy works. If you have a cash-value policy, it likely includes a clause that allows you to borrow against it. Make sure you know in what time frame the loan may be made and what the interest rate would be.

Learn about the policy's change-of-plan provision. Many straight life insurance policies have a clause under which you may change your plan to a high-premium policy during the lifetime of your plan. Know what your options are. If your contract isn't clear about the change-of-plan provision, make sure the policy is written so it's understandable.

Finally, know what you need to do to make a claim on the policy. Make sure it's clearly written on your policy that you contact and under what time guidelines you're required to act. Also, become aware of what options the insurance company has when you make a claim. Learn how long the company has to respond to your claim.

But don't lie on your application or policy! Your entire contract can be voided, if you knowingly conceal information about yourself and your insurance situation. Misrepresenting any facts in order to obtain insurance is fraudulent. You may not lie on your application, and you may not lie when filing a claim. This can lead to serious criminal claims against you.

When your insurance agent hands you your life insurance policy, look it over thoroughly. Maybe even take it home with you to give it your full attention, before you sign. (In fact, many states require that insurance companies provide a "free look" period, usually 10 days, during which you may return the policy for a refund.) Talk with your agent about any concerns you might have. Policies are difficult to understand. But if you get your questions answered before you accept the terms, you'll be more relaxed and confident with your decision to buy the policy.