[Fin Talk] Getting to Know You – My Life Insurance Policy
By Arlyn Tan
The life insurance policy may win in the category of the most misunderstood financial document because of the contract’s complexity and it is the least revisited document.
I would like to take this opportunity to empower the policyholders and the insured by sharing what you can do with your policies while you are still alive. The usual conversations that happen before the purchase and during the life of the policies are the duration of payment and coverage, beneficiaries, and the benefits.
Is it true that insurance is only useful when the insured dies ?
The common perception until now is that insurance is only “sulit” when the insured dies. In reality, The range of policies would allow you to have three types of benefits: Living and Death
Living benefits include the cash values, dividends, endowment, and fund value. The guaranteed cash values can serve as an emergency or business fund with interest rate though. The dividends and guaranteed endowment values can be used for retirement or education funding.
Death benefits are the agreed covered amount. Some companies would include the dividends as part of the death benefit.
Do I need to pay till I die?
The activation of the insurance contract starts upon the approval of the application by the insurance company’s underwriting department, with consideration of the risks associated with the applicant. The lifespan of policies is dependent on the type of insurance. Some would last for a year and others last till 100 years old.
However, the payments do not need to be up to the validity of the contract. The payment terms vary from one policy to another. Don’t worry, there are options to choose from: guaranteed paying period ( 5, 10 ,15 years) and non-guaranteed paying period. The concerns come in when clients believe that they bought the policy because the duration is 10 years only. Check for the words “guaranteed paying period” in the contract. If you don’t see the word guaranteed – ask for the range of paying period and what are the factors that affect its duration. It can be driven by dividend, market forces, or underlying assets (bond and equities).
If you have a preferred duration, you need to tell the insurance advisor that this is the primary consideration. In traditional plans, there are guaranteed paying period plans. In a variable universal life plan, the paying period is not guaranteed which can be shortened and extended. The policy is active till the fund value can support all the maintenance charges of the policy.
What are the changes that I can do with my life insurance policy ?
For its upkeep, there can be changes that the insured or the policyowner can do as triggered by changes in life stage, financial status, personal and family events.
Reduction / Increase in Coverage
Correction of Birth Date
Addition or Deletion of Riders
Change from Smoker to Non-Smoker Rates
Removal of Extra Rating due to Occupation/ Avocation / Medical Reason
Change in the Mode of Payment
Change in Mailing Address
Transfer of Ownership
Assignment of the Policy as Collateral
Conversion of Term Plan to Participating Plan
Fully Paid Up / Reduced Paid Up Life / Paid Up Term
Change in Fund Allocation / Fund Switching
Change in Premium Payment Default Option
Can I maintain my policy on my own since my advisor already retired from her practice?
Yes and No. It depends on your preference and need.
Yes, you can maintain it on your own because the insurance companies have physical offices, call centers and online facilities. Should you want any changes, you can ask the head office people for help. They can assist you on a transactional basis. This arrangement requires that you have a clear understanding and regular record keeping of your policy year after year.
No, you would not want to maintain it on your own when you feel that deep diving multiple policies can be challenging unlike investing in stocks where the investors decision is to buy and sell only. For insurance policies, the decision making involves complex consequences. To make informed choices, you can rely on the options laid out by an experienced insurance advisor.
One responsibility of the insured or policyholder is to review and decide on an upgrade or downgrade. Insurance is only relevant when the most recent risks are covered with the right amount. You owe your beneficiaries to have sufficient coverage to enable them to move forward with less stress.
When you subscribe to a life insurance program, you make a promise like a wedding vow: “till death do us part.” Loving your policy comes from your knowledge & appreciation about the policies. Nurturing it with patience and understanding allows you to pay premiums even if there is no short term return. When you enter long-term relationships, you can rely on your partner rain or shine. When your mission on earth has ended, your partner, the life insurance policy, begins its main task which is to make your presence and love be felt by the beneficiaries.
For any queries about your life insurance policies, you can email me at firstname.lastname@example.org
Arlyn Tan is a Strategic Wealth Consultant. She helps individuals and organizations on how to maximize the value of their money through risk, health & wealth management. Her mission lies in making sure that clients achieve 3 things. First, they reach their milestones on time with sufficient resources. Second, they protect them from the impact of economic losses secondary to unexpected events. The third and most important is that they enjoy meaningful and balanced lives.
LinkedIn/Twitter: Arlyn Tan