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Department of Insurance, SC

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I purchased a life insurance policy and now I have decided I don't want it. My agent told me I have a "free look" period. What does "free look" mean?

You are allowed no less than 10 days from the date a life insurance policy is delivered to review and evaluate the policy. A policy sold by mail order must provide a 30-day review period. Should you elect to return the policy for any reason during the "free look" period, the insurance company must refund any premium you paid

Can an insurance company void my policy if I made a mistake in completing the application?

The insurer may contest a life insurance policy during the first two years after its date of issue. If the insurer finds that a material misrepresentation was made in the application that would have affected the insurer's decision to issue the policy, the carrier may void the policy. The company would have the responsibility only to refund premiums paid.

A family member has died. We are sure that he had insurance policies but we cannot find any. Can you check to see what policies exist?

The National Association of Insurance Commissioners (NAIC) offers a free, secure, national service that allows you to search for a deceased person's lost life insurance policies and/or annuities. You can access the NAIC Life Insurance Policy Locator by going to doi.sc.gov/lpsearch.

When I bought my life insurance policy, the agent said it would be "paid up" after ten years, but it’s been that long and I’m still getting bills. Why?

Your contract (insurance policy) may provide for guaranteed interest rates and/or dividends the insurance company will pay on your premiums. But your premiums must make very high earnings before they will "pay up" your policy. The company must stand behind items that are guaranteed in the contract. Promises of "paid up" life insurance are illegal when based on non-guaranteed values. You would need documentation of the agent promising this. Documentation would include any writing containing the promise -- even an informal, handwritten note or a similar notation by an agent.

Who can take out a policy on my life?

Only someone who has an "insurable interest" can purchase an insurance policy on your life. That means a stranger cannot buy a policy to insure your life. People with an insurable interest generally include members of your immediate family. In some circumstances your employer or business partner might also have an insurable interest. Insurable interest may also be proper for institutions or people who become your major creditors.

Must my beneficiary have an insurable interest?

No. If you buy a policy on your own life, you become the owner of the policy. As the owner, you can name anyone as beneficiary... even a stranger! Fraternal benefit policy laws differ and additional information on this issue can be referenced in Title 38, Chapter 38 of the SC Code of Laws.

What about companies that advertise "no physical exam?"

The insurance may be more expensive than if the company required a physical. Although there is no physical, you will probably have to answer a few, broad health questions on your application.

Some life insurance ads claim "you cannot be turned down." What's the catch?

Such ads are for "guaranteed issue" policies that ask no health history questions. The company knows it is taking a risk because people with bad health could buy their policies. The company balances the risk by charging higher premiums or by limiting the amount of insurance you can buy. The premiums can be almost as much as the insurance. After a few years you could pay more to the insurance company than it will have to pay to your beneficiary. Such policies may offer only the return of your premiums if you die within the first couple of years after you buy the policy.

Why is term life often called "temporary" insurance?

Insurance agents sometimes refer to term insurance as "temporary" because the term policy lasts only for a specific period. It is probably no more "temporary" than your auto or homeowner insurance. Term policies provide coverage for a specific period of time and must be renewed when that period ends.

Why are some insurance agents reluctant to sell term insurance?

An agent may believe term is risky, but only because you could have a hard time buying a policy in the future if your health deteriorates or you cannot afford the higher premiums. Commissions could also be a reason for an agent who discourages term. The agent often makes less money for selling term policies than for other forms of life insurance.

What do I get when I buy term insurance?

You have bought and received the company's guarantee that if you die during the term of the policy, it will pay a death benefit to your beneficiary.

Does that mean I've wasted my money if I don't die during the term?

No more than you have wasted money by buying car insurance but never having an accident. You've purchased peace of mind. With term life insurance, if you die during the term, you know the company will pay your beneficiaries.

An insurance agent has suggested I switch term companies every couple of years to take advantage of the company's promotional rates in the first couple of years. Anything wrong with that?

Nothing wrong, but there is always a risk when you switch polices that you could be subject to a new contestability period. You start a new 2-year contestability period anytime you switch. If you die during that 2-year period, the insurance company can (and probably will) investigate the statements you made on your application. If you've given inaccurate or incomplete answers, the company may (and probably will) refuse to pay the death benefit.

I understand my permanent policy would be "fully paid up" at age 65. What does that mean?

"Fully paid up" means just that. You have made enough premium payments to cover the cost of insurance for the rest of your life.

What happens to the cash value after the policy is fully paid up?

The company plans to use the cash value to pay premiums until you die. If you take cash value out, there may not be enough to pay premiums. The company could require you to resume paying premiums, or reduce the amount of the death benefit to an amount that the remaining cash value will support.

I had a policy that was paid up; now I'm told I don't. What can I do?

You may have signed papers that permitted the cash value of your paid up policy to be used to pay for another, larger policy. If you're not sure or can't remember, call the insurance company.

What is a "participating" policy?

It is a policy that may pay you dividends. You have a chance to "participate" in the company's earnings. A life insurance dividend is actually a refund of part of your premium. When a company collects more money in premiums than it needs to pay death claims and maintain the insurance pool for future claims, the company may pay dividends at the end of that year.

How much cash value is in my policy?

Read your policy. It has a table of cash values that should provide the answer. Call your agent if you are still not sure of the cash value amount.

What happens to the cash value in my policy when I die?

When you die, the insurance company will pay the death benefit. No matter how much cash value you may have had in the policy the moment before you died, your beneficiaries can collect no more than the stated death benefit. Any loans you have not repaid (plus interest) will be subtracted from the death benefit. The result: your beneficiary could wind up with less than the face amount of the policy. The exception: some whole life policies pay both the death benefit and the cash value when you die.