You’re Being Pressured to Buy Immediately

There are legitimate reasons not to put off buying life insurance forever. Your age and health can affect eligibility and premiums, and nobody knows what tomorrow will bring.

But that’s very different from someone using pressure to prevent you from understanding what you’re buying.

If you’re hearing things such as, “Just sign here,” “Don’t worry about that,” or “We can explain everything later,” slow down.

Life insurance can potentially remain in place for decades. You should have an opportunity to understand the policy before committing to it.

You should know what the premium is, whether that premium can change, what the death benefit is, how long the coverage is intended to last and what conditions must be met to keep the policy in force.

You Don’t Know What Type of Life Insurance You’re Buying

Ask a very simple question:

“What exactly am I buying?”

Is it term life insurance? Whole life? Universal life? Indexed universal life? Another type of coverage?

You should not leave an insurance conversation still wondering what kind of policy you purchased.

Different policies are designed differently. Term insurance generally provides coverage for a defined period and usually does not accumulate cash value. Permanent forms of life insurance may provide lifetime coverage if the policy requirements are met and can include cash-value features.

Neither category automatically makes a policy “good” or “bad.” What matters is whether its features fit the reason you’re buying insurance in the first place.

If you want a deeper comparison, read our guide to term vs. whole life insurance .

The Policy Sounds Too Good to Be True

Be careful whenever life insurance is presented as if it has no disadvantages, costs, restrictions or tradeoffs.

This becomes especially important with cash-value life insurance.

Some permanent policies can accumulate cash value. Depending on the policy, the owner may also be able to access available policy value through loans or withdrawals.

But that does not mean the money is free.

Policy loans can accrue interest and may reduce available policy value and the amount ultimately paid to beneficiaries. Withdrawals can also affect policy values and benefits. Depending on the policy and circumstances, excessive loans or insufficient funding can contribute to a lapse.

If somebody can explain every possible benefit but becomes vague when you ask about policy charges, loan interest, surrender charges or lapse risk, keep asking questions.

You’re Shown Big Future Numbers Without Being Told What’s Guaranteed

Some permanent life insurance presentations include illustrations showing policy values many years into the future.

Illustrations can be useful, but you need to understand what you’re looking at.

Ask:

• Which values are guaranteed?
• Which values are non-guaranteed?
• What assumptions were used?
• What happens if actual performance is lower?
• Are premiums guaranteed?
• What happens if I pay only the planned premium shown?

A projected value is not automatically the same thing as a contractual guarantee.

The National Association of Insurance Commissioners specifically encourages consumers to ask what portions of policy premiums or values are not guaranteed and whether the policy contains guaranteed minimums.

Nobody Explains How the Policy Could Lapse

Don’t only ask how a life insurance policy works when everything goes according to plan.

Ask what happens when it doesn’t.

Depending on the type of policy, questions might include:

• What happens if I miss a premium?
• Can my required premium change?
• What happens if I pay less than originally planned?
• Can policy charges change?
• What happens if non-guaranteed performance is lower than illustrated?
• How do policy loans affect the coverage?
• Under what circumstances could this policy lapse?

This is particularly important when considering universal life policies where premium flexibility and policy values can affect how long coverage remains in force.

“Flexible premium” should never be interpreted as “I can pay anything I want forever and the policy will automatically stay in force.”

The Recommendation Has Nothing to Do With Your Actual Life

Imagine meeting someone to discuss life insurance and they don’t ask about your income, children, spouse, mortgage, existing coverage, financial responsibilities or budget.

But somehow, five minutes later, they already know exactly which policy you need.

That’s a problem.

Life insurance should begin with the financial problem you’re trying to solve.

Your goal might be replacing income. Someone else’s might be protecting a mortgage. Another family may be concerned about providing for children, final expenses or maintaining permanent coverage.

Those are different needs.

Parents trying to determine an appropriate coverage amount can also read How Much Life Insurance Coverage Does a Parent Need?

They Don’t Want You to Compare Your Options

This may be one of the biggest warning signs.

Be careful when someone has to convince you that every other type of life insurance is terrible in order to make one particular product look good.

Statements such as:

• “Term insurance is always a waste of money.”
• “Whole life is always a rip-off.”
• “Everybody needs an IUL.”
• “Nobody needs permanent insurance.”

oversimplify a decision that should be based on individual needs.

There are people for whom affordable term coverage can make sense. There are also people with legitimate reasons for considering permanent coverage.

The important question isn’t:

“What is the best life insurance policy?”

It’s:

“What type of life insurance is appropriate for my situation?”

The NAIC recommends comparing similar policies from different insurers after determining what kind of coverage fits your needs.