14 January 2014 0 Comments

The One Way Street

man on a one way streetA Life Insurance Policy is like a One Way Street… in the good sense.  Once a policy has been issued there is no turning back—not for you—but for the insurance company.  When you buy an automobile or homeowner’s policy the insurance company has typically only committed to you for a one year period of time.  After that they can cancel your policy or increase your premium.  With a Life Insurance Policy, the contract is all in your favor.  It is a unilateral contract that locks in the insurance company, but commits you—the policy owner—to nothing.

Even term life insurance, whose initial premium is guaranteed only for a stipulated period of time, typically guarantees that the policy owner can continue coverage beyond that point by paying a higher guaranteed premium, or converting to a permanent policy—Whole Life or Universal Life.  Once the policy has been issued the insurance company does not have the right to change the rules.

But, what about the situations I covered a short while back where an insurance company might deny a life insurance claim?  It’s true that suicide in the first two years of a policy would negate a claim, but that is in the contract from the beginning and after two years, even death from suicide is covered.  Also, during the first two policy years a claim could be denied due to material misrepresentations made on the application.  But, that’s an easy matter to deal with; simply be being honest and complete when answering questions put to you by the agent, other insurance company representatives and medical examiner.

So, once the life insurance policy has been issued, the company is on the hook.  You, the policy owner, is under no obligation.  If you decide to stop paying premiums, that is your prerogative.  There is never a negative impact on your credit rating for failing to pay a life insurance premium when due.  Of course, the coverage may be discontinued, but it’s your right to make that decision at any time.  No matter how badly your health deteriorates once the policy has been issued and you are beyond the two year contestable period, the life insurance company can’t change the ground rules.

A Life Insurance Policy is a contract that gives you a clear path down a one way street of providing financial security for those who depend on your for support.

Next I deal with the statement I recently heard that life insurance is a lousy investment.  You might be surprised at my reaction.

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