Your idea of a good time probably doesn’t include an evening spent poring over your life insurance documents. Their dense language and legal jargon make boring reading, and frankly, almost anything else you could do with your free time would be more entertaining. (And we say that as a professional life insurance publication!)
Still, you have good reason to familiarize yourself with the contents of your policy. They describe everything you and your beneficiaries need to know about your coverage, including how to file a claim in the event of your death, and what conditions must be met for your insurer to pay benefits.
These are important questions. Read on to learn what these details are and what they mean.
What are policy documents and why do they matter?
Your life insurance policy is a legal contract between you and your insurer, and your policy documents outline the terms of your coverage. You probably haven̵7;t read the terms and conditions of the websites you visit daily either, but would you if you knew hundreds of thousands or even millions of dollars were at stake?
That’s how important your policy documents are. They govern your coverage, the insurance claims process and the eventual payment of your death benefit. You need to know what they contain to avoid expensive and unpleasant surprises in the future – your future or your loved ones.
What do policy documents from life insurance companies contain?
If you’ve only dealt with homeowner’s policies or health plans before, you may not be used to getting extra paperwork on top of your policy and application details. More documents are required for life insurance, which we cover below.
Basic plan information
Your life insurance documents begin by listing the basic details of your policy, including:
- Your name and personal information
- Police number and date of issue
- The type of insurance you purchased
- Your coverage categories
- Your term length
- Your premium amount
- Your beneficiaries
- The risk class assigned to you by your insurer based on your medical history/examination and other factors
You can return to this section to get an overview of your life insurance details and an overview of what you can and cannot claim.
Information about the benefits you have chosen
The death benefit is why you buy life insurance in the first place. It’s how you provide for your loved ones after you’re gone. Your policy documents will contain detailed information about the payout amounts your beneficiaries will receive and any riders attached to your policy.
Benefit illustration section
The benefits illustration section uses tables to break down your coverage amount and future premium payments in a more digestible form. If you have a life insurance policy, you will find information about the estimated premiums you will pay if you renew your policy. If you have a cash value policy, such as whole life insurance, you’ll find a breakdown of your future premium payments and coverage, as well as the cash surrender value of your policy over time.
Claims for death benefits
Just as important as your death benefit is who can claim it and under what circumstances. Every life insurance policy contains exclusions or conditions of death for which your insurer will not pay benefits. Insurance companies add these exclusions to minimize the risks they take on by insuring you, and some common ones include death by:
- Acts of war
- Military service
- Airplane accidents
- Dangerous or illegal activities
Insurance contract section
In the insurance contract section of the policy, your insurer confirms that they will pay your beneficiaries on your behalf – provided you do not die in excluded circumstances.
Section for definition of policy terms
If you’re having trouble wading through the policy’s legalese, this section defines all the terms used in your contract. You may have used some of these terms before, but you want to understand their legal meaning because it is what governs your policy and the potential benefit payout.
Damage and settlement instructions section
Your policy will include the step-by-step instructions your beneficiaries must follow to file a claim. These steps will differ slightly between insurance companies and plans, so you need to pay attention to the exact language used.
You should review these instructions with your loved ones well before they need them. It will be one less thing for them to worry about when you are gone.
Additional coverage options and riders section
When you buy your life insurance, you can make additions and changes to your policy through different types of riders and endorsements. Some examples of these include:
- A disability rider replaces part of your income should you become disabled and unable to work.
- A term conversion rider allows you to convert a term policy into a permanent life policy before the end of the term.
- A premium exemption rider allows you to stop paying your insurance premiums for up to six months if you become disabled and unable to work.
- A critical illness rider that allows you to access a certain amount from your death benefit if you become critically ill.
- An accelerated death benefit rider that allows you to access a portion of your death benefit if you develop a terminal illness.
(Note that eligible Haven Term policyholders enjoy access to the Haven Life Plus bonus rider. It includes discounted and free services like a health app subscription, secure online document storage and much, much more.)
Life insurance policies contain many provisions that describe your rights, your insurer’s rights and the features, terms and benefits of your insurance cover. Some common life insurance provisions include:
- A reinstatement provision allows you to reinstate a lapsed life insurance policy under certain conditions. You must reinstate it within a certain period of time, usually three to five years, and you can only do so if you have not surrendered your policy for its cash value.
- A free look or right-of-return provision allows you to cancel your policy for a full refund if you do so within a certain period of time, usually 30 days or less.
The competition section
Most life insurance contracts contain a contestability clause. Under this clause, your insurer only has so long after your policy is effective to investigate it for inaccuracies and cancel your policy. Usually this period is two or three years. Your insurer cannot cancel your coverage for incorrect information they discover after time has passed.
Note that this clause does not cover intentional fraud and has some common exceptions.
For example, if you state your age incorrectly on your application, your insurer may not cancel your cover, but they may adjust your death benefits to reflect your actual age. And in some states, insurance companies may include a policy provision that allows them to cancel your coverage if you die before the coverage period ends.
The section with missed payment periods
If you do not pay your insurance premiums, your coverage may end, causing you to lose your death benefits. But every policy includes a grace period for non-payment, giving you a little extra time to catch up if something goes wrong. The most common grace periods are 15 or 31 days after your payment due date. You can keep your policy in good standing by paying the full premium within that time frame.
Tax information section
Your beneficiaries usually do not have to pay tax on any death benefits they receive, but there are some exceptions. They can choose between a lump sum and an annuity, the latter of which means they receive a series of payments over several years. And any interest that accrues on their annuity account may be taxable.
You may also have to pay tax on life insurance if:
- You have an employer-sponsored group life plan with a death benefit of $50,000 or more.
- You surrender your policy to your insurer for its cash value, which is more than the premiums you have paid
- You sell your policy to a third party for more than you have already paid in premiums.
Why do you need an insurance document for your life insurance cover?
The official documents for your life insurance policy contain everything you and your loved ones need to know about your insurance coverage. Sure, they don’t make for a nice afternoon of light reading, but they’re an important reference to have on hand if a problem arises or your beneficiaries need to file a claim.
But a lot can happen between receiving your insurance documents and filing a claim. And how many of us can say we’ve kept all our papers in working order for 10, 20 or even 30 years? (It’s worth noting here that eligible Haven Term policyholders enjoy free access to LifeSite, online document storage with military-grade encryption.)
If you need to track down a lost policy, you can use free online tools like the National Association of Insurance Commissioners (NAIC) Life Insurance Policy Locator Service. When you apply, the NAIC contacts participating insurance companies to see if they can match the name you gave them to any existing life insurance policies. If a policy is found and you are named as its beneficiary or other authorized party, the NAIC will send you the necessary information.
Find the right insurance for the coverage you need
Your life insurance policy is not just a legal document. It is a promise to your loved ones that they will be taken care of even after you are gone. At Haven Life, we can help you find the right life insurance policy to meet your family’s needs. Apply today and find out if you qualify for up to $3 million in life insurance.