Life Insurance: How To Read Your Policy

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Reading a life insurance policy can be confusing because it includes several pages of unfamiliar terms and jargon. Therefore, many people skip reviewing their policy and sign the dotted line without knowing the details. This can lead to unexpected exclusions in coverage or a misunderstanding as to the types of coverage being offered.

Policy Overview

The first few pages of any life insurance policy include a high-level summary of the policy itself. It's here you'll find basic information about the policy, including how much it's worth, the amount of your premiums, and the name of the insured. Depending on the life insurance company, you may also find a coverage page with the company's name, the type of plan you've purchased, and the insurance officer's signature.

The first part of the actual policy itself is the declaration page, which is sometimes referred to as the schedule of benefits and specifications. The information contained in this section is the same information you discussed with your agent throughout the application process. The declaration page will include the policy number, the issue date, your premium class, your name and information, the amount of your premium payments, and the amount of your benefits, which is sometimes called the "face amount."

Coverage Details

After the summary and declaration page, you'll find the insuring agreement section which outlines all the major details of the life insurance policy. This section includes what's covered in the policy, your rights as the policyholder, and information on how to change your beneficiary when needed. This is also where you'll learn how to borrow against the policy's cash value, which can come in handy on down the road.

The insuring agreement typically contains tables or illustrations to help you understand the concepts, definitions for the terms used throughout the policy, settlement information, and any riders or endorsements you've added.

Finally, additional provisions will be included in the policy when applying, but they do vary by state. A common provision includes your application itself, as most state laws consider the contract to consist of the application and policy pages. This is also where you'll find information on your grace period for if you miss a premium payment and the incontestability provision, which establishes a period of time in which you can contest the policy for inaccurate information on the application.

The specifics of any life insurance policy can be overwhelming, but as long as you take the time to understand the terms, you'll be set.

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