Most people understand the need to have life insurance, but when it comes to actually buying a policy, they are unprepared to deal with some of the complexities of the legal aspects of the policy restrictions.
When looking for a policy, these five questions are important points of consideration in the purchasing process. They will affect how the death benefit paid is to your loved ones if something does happen to you. (Beware of the salesman who says there's no such policy that meet these criteria)
1. Does the policy contain an "Act of God" exclusion? This means that if the cause of death is determined to be an "act of God", the policy will not pay a death benefit, or the benefit is reduced from the original face amount. An "act of God" is, essentially, a natural disaster.
For example, if you are killed in a hurricane, tornado, or other type of storm, the insurance company doesn't have to pay, (or pays a reduced amount). The same with being killed as a result of an earthquake, or drowning in a flood.
One of the main problems with this exclusion, (besides not getting the money), is that when a such a catastrophic event occurs, it becomes difficult to prove that the cause of death wasn't caused, (indirectly), by the disaster. Here is what I mean. An earthquake happens in the middle of the night, you get so startled you have a heart attack. Because emergency help couldn't get to you, (roads are blocked), you died. Was your death a result of the "disaster" or not? (Lawyers could argue this point for years in court).
Find a policy that does not have this exclusion.
2. Does the policy have an "Act of War" exclusion? If your death is the result of someone committing an act of war, the policy will not pay the death benefit, (or may pay a reduced amount). For example, you are on vacation in the capitol city of an exotic far away land, and another small country, (say, to the North), decides to fire a couple of missiles and they just happen to land on your hotel. That could be considered to be an act of war.
When the 911 attack occurred on the World Trade Center in New York, the president of the United States said in a public speech that the nation was at "war", (with terrorists). Many insurances then initially refused to pay death claims of the victims, saying that the deaths occurred due to an act of war. After a period of legal wrangling, court challenges, (and government "persuasion"), some of the claims were paid. (But who wants their family and loved ones to have to go through that?)
Make sure the policy you want to buy does NOT have this exclusion.
3. Does the policy exclude "Acts of Terrorism"?. Almost unheard of in the past, this exclusion is beginning to appear in policies now because of the events of 911 and the bombing in Oklahoma City.
I personally hold the belief that attacks of this magnitude will not likely happen again in my lifetime, but I'm sure that smaller events will probably, (inevitably), occur. Also, what about dying from the indirect effects of an attack? For example, lets say some terrorist sets off a "dirty bomb" and you die from complications of the radiation poisoning? Do you want your family to have to fight over this issue with the insurance company in court just to get their money?
Make sure the policy does NOT have this exclusion.
4. What documentation or "proof" of death is required before the policy benefit is paid? (How does my family prove that I'm dead). One of the problems that the families of the 911 victims encountered when dealing with the insurance companies, was that the companies refused to pay the claim because their was no "proof of death", in other words, (to be blunt), no body, no death certificate, no check.
You need to make sure that you, (and your beneficiaries), know what the insurance company will require from them before the claim will get paid.
5. What is the financial "health" of the insurance company, i.e. will the company have the money to pay the claim when the time comes. Individual states regulate the insurance companies that do business in their state. The have standards requiring that insurance companies have a certain, "minimum", level of financial capacity. But even with that, there is a wide range of what is considered a financially sound insurance company.
There are companies that analyze insurance companies and assign them a rating based on their relative financial health. Two of the most well known rating companies are AM Best and Standard & Poor's. Do your homework and make sure the company you plan to get your policy from is strong financially.
The bottom line is that none us want our families to have to receive a death benefit from a life insurance policy, but if they do have to make a claim, wouldn't you want to have a policy that won't require that your family hire a team of lawyers just to collect the money?
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