6 Things Your Life Insurance Policy Should Include

A life insurance policy is one tool you can use to make sure that your financial affairs will be taken care of if you should die. It can also help your beneficiaries weather financial storms and keep their standard of living despite the loss of your income. For those reasons, it's important to make sure that your life insurance policy contains these 6 things:

1. Description of Benefits

Your application is not the document you want to detail the benefits you've purchased. The life insurance policy itself should detail:

  • The name of the insured
  • The policy number
  • The type of policy
  • The term of the policy and issuance date
  • The amount of coverage
  • Riders
  • Additional information that will fully describe the benefits

The terms of the policy overrule any discrepancy between what you applied for and the policy itself. Therefore, it's important to read this provision very carefully.

2. Owner Rights

There are times during the term of your life insurance policy where you may want to transfer or assign ownership to someone else or another entity. You'll also want to change the policy as you see fit without the consent or notification of your beneficiaries (unless required by state law). This section covers your rights and must be included in any policy you own to secure those rights.

3. Beneficiary

The only reason for buying a life insurance policy is to leave money to a beneficiary. That beneficiary can be a person or persons, or an entity. The policy should define the term beneficiary and list any mandated beneficiaries and coverage amounts required by state law. For example, some states require that you leave a certain percent of a life insurance policy to a surviving spouse. You can't change that no matter what your policy says.

4. Cash Value

You need to know how your insurance company determines the cash value of a policy and what the cash surrender value is for whole life insurance policies. It's important for your policy to detail what will happen to these values, if you miss premium payments.

5. Guaranteed Payment Tables

It's important to know exactly what your beneficiaries will receive in exchange for all of your premium payments. A payment table can illustrate your benefits on a yearly basis, and one that is guaranteed should be included in the policy. This will help you and your beneficiaries know exactly what to expect, which can help you plan accordingly. It will also give you a visual aid to easily compare your policy to what you actually applied for.

6. Lapse

There are times when you might not be able to pay premium costs due to illness, job loss or many other factors. What happens to the policy when you can't make payments for a time? Your policy needs to include a statement of how long it will remain in effect after you've stopped making payments. You should not immediately lose your policy during this gap. If the policy you're considering penalizes you in that way, you don't want that policy.

Reading the fine print of your life insurance policy is more important than the provisions in bold. If you don't understand the terms of your policy, ask many questions or consult with an attorney.