Would your family suffer financially if you were to die unexpectedly? According to research conducted for the National Association of Insurance Commissioners (NAIC), less than half of young families have life insurance for either spouse that they have purchased on their own. Because planning for life's uncertainties will help secure a financial future for those you love, the North Dakota Insurance Department suggests you review your insurance needs to help ensure you have the right policy for your financial situation and your family composition.
The first step in purchasing life insurance is to decide how much coverage you need, for how long and what you can afford to pay. Keep in mind the biggest reason for you to buy life insurance is to cover the financial effects of an unexpected or untimely death. Life insurance also can be one of many ways to plan for the future.
Six questions to ask yourself before buying life insurance are:
- How much of the family income do I provide? If I were to die, how would my survivors get by? Does anyone else depend on me financially, such as a parent, grandparent, brother or sister?
- Do I have children for whom I'd like to set aside money to finish their education in the event of my death?
- How will my family pay final expenses and repay debts after my death?
- Do I have family members or organizations to whom I would like to leave money?
- Will there be estate taxes to pay after my death?
- How will inflation affect future needs?
When considering your coverage, be sure to factor in the life insurance you currently have, including group insurance from your place of employment or veteran's insurance. Don't forget to include benefits from Social Security or survivor's benefits from a pension plan.
All policies are not the same. Once you have determined how much coverage you need, it's time to find out more about the types of policies available. There are two basic types of life insurance - term insurance and cash value insurance.
A term life insurance policy covers you for a specific number of years, or term, such as 10, 20 or 30 years. It pays a death benefit only if you die in the insured term. Term insurance generally offers the largest insurance protection for your premium dollar. A term life policy has lower premiums than a cash value policy of the same amount, however, it does not build up cash values that can be used in the future.
For a cash value life insurance policy, premiums are higher at the beginning than they would be for the same amount of term insurance. With a cash value life insurance policy, the part of the premium that is not used for the cost of insurance is invested by the company and builds up cash value. You may borrow against the policy's value, use the cash value to increase your income in retirement or even help pay for needs, such as a child's tuition, without canceling the policy. Cash value life insurance may be one of several types, such as whole life, universal life or variable life.
After you have decided what kind of life insurance is best for you, compare similar policies from different companies to find which one is likely to give you the best value for your money. A simple comparison of the premiums is not enough. Other things to consider are:
- Do premiums or benefits vary from year to year?
- How much do the benefits build up in the policy?
- What part of the premium or benefits is not guaranteed?
- What is the effect of interest on money paid and received at different times on the policy?
Remember that no one company offers the lowest cost at all ages for all kinds and amounts of insurance. You should also consider other factors:
- 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. A year-by-year display of values and benefits can be helpful. Your insurance agent or company will give you a policy summary or an illustration that shows benefits and premiums for selected years. Be sure to ask questions to help ensure you fully understand the policy summary.
- Are there special policy features that particularly suit your needs?
- Do you understand how non-guaranteed values are determined? Ask your agent how the policy is affected by interest rate changes, changes in mortality (deaths), profits of the company, changes in the value of the investments supporting the policy and changes in other key factors.
Before buying, be sure you are dealing with a reputable insurance agent and company. The North Dakota Insurance Department recommends you stop before signing anything or writing a check and call the Department to confirm that the insurance agent or company is licensed to sell insurance in North Dakota.
The North Dakota Life & Health Insurance Guaranty Association is a statutory entity created in 1983 when the North Dakota legislature enacted the North Dakota Guaranty Association Act. The Association is composed of all insurers licensed to sell life insurance, accident and health insurance, and individual annuities in the state of North Dakota. In the event that a member insurer is found to be insolvent and is ordered to be liquidated by a court, the North Dakota Guaranty Association Act enables the Association to provide protection to North Dakota residents who are holders of life and health insurance policies and individual annuities with the insolvent insurer.
The purpose of the Association is to protect resident policyholders in the event of an insurance company insolvency. Specifically, when a member insurer is found to be insolvent and is ordered liquidated, a special deputy receiver takes over the insurer under court supervision and processes the assets and liabilities through liquidation. The task of servicing the insurance company's policies and providing coverage to North Dakota's resident policyholders becomes the responsibility of the Association. The protection provided by the Association is based on North Dakota law and the language of the insolvent company's policies at the time of insolvency.
The National Association of Insurance Commissioners (NAIC) has additional information and resources available to consumers regarding life insurance.
The NAIC can assist consumers in locating life insurance policies and annuity contracts of a deceased family member or close relationship using its Life Insurance Policy Locator. When a request is received, the NAIC will:
- Ask participating companies to search their records to determine whether they have a life insurance policy or annuity contract in the name of the deceased.
- Ask participating companies that have policy information to respond to the requester if the requester is the designated beneficiary or is authorized to receive information.