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What to watch for with life insurance

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Life insurance is one of the most important financial products a person will ever buy, but there are several things that a consumer should look out for when buying life insurance. If you are currently shopping for life insurance, be sure to pay attention to these three items.

Restrictions on the Policy

Most people make the assumption that buying life insurance means that their loved ones will be covered no matter what happens to them. In fact, most life insurance policies have restrictions that limit or eliminate payouts in certain scenarios. For example, many military members are surprised to learn that their private life insurance does not pay out in the event of their death in combat. Additionally, many policies exclude death by suicide and deaths that occur during a massive disaster.

In other cases, a life insurance policy will require the insured person to undergo a health examination, then bar payouts in the event that the insured dies from what is considered to be a pre-existing condition. Many of these policies will also require insured persons to submit to periodic and sometimes random health screenings that look for evidence of nicotine or drug use. If a test comes back positive for nicotine and the insured has stated that he or she is a non-smoker, the policy can be cancelled.

Whole Life

While life insurance is actually a combination of a term life policy and a long-term investment such as an annuity. While these products can be right for some people, whole life policies come with several downsides. To start, their premiums are often much more expensive than the premiums for a term life insurance policy. Additionally, the investment product that is a part of these policies may not be right for everyone, and they often come with hefty fees if you choose to cancel the policy before the term is up. If you are looking at life insurance policies, make sure to take a lot of time to review a whole life policy before deciding to buy one.

Declaring Beneficiaries

When buying a life insurance policy, the insured person will be required to declare who should benefit from the policy. Unfortunately, many people just fill in the name of a relative without really thinking about this part of the form. After the form is filled out, few people think about updating it. This can lead to benefits that are paid out to only one child instead of all of the children of an insured person, and in some documented cases it has led to an ex-spouse receiving benefits and the insured person’s current spouse receiving nothing.

To avoid these issues, take a few minutes to think about who you want to benefit from your policy. After every major life event, reconsider this question for a few minutes, and make a change to your form to remove people who no longer should benefit and add people who need to benefit.

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