10 Ways to Avoid Getting Scammed by Your Life Insurance

by Miranda Marquit

Man crossing fingers

Life insurance is a great way to make sure your family is provided for in the event of your death, but you need to be careful. There are a number of life insurance scams, as well as insurance agents and companies happy to sell you something you don't need. Here are 10 steps you can take to avoid being scammed by your life insurance:

1. Understand What You Need

First of all, it's vital that you understand what you need in terms of life insurance. You should know how much life insurance you need, and you should know what kind of insurance you need. Think about whether term coverage or whole life coverage works best for your situation. Before you even begin shopping around, have a good idea of what you want.

2. Vet Your Insurance Agent/Company

Before deciding to work with an insurance agent or company, be sure to do your research. Double check licensures of insurance agents, and read up on the insurance company to make sure that it's legitimate. When you are buying insurance online, make sure you are on the official web site of the company so that you avoid giving your personal information to a scammer. It helps if you know your insurance agent personally, though, and can meet him or her in person. This kind of connection can help you avoid getting scammed (although it isn't foolproof).

3. Comparison Shop

Take the time to compare different policies. You want to know your options, and be sure that you are getting the best value for your money. As you comparison shop, make sure that you're comparing apples to apples. Compare policies with similar payouts, term lengths, conditions and restrictions. This will give you a better idea of which company is offering you the best deal. Be careful as you shop, though. One option that seems really different in price from a group of policies in a similar price range might be a red flag. You know that if it appears too good to be true, it probably is.

4. Read Your Policy

It doesn't make stimulating reading, but it's important to read through your life insurance policy before giving your final signature. Make sure that everything you discussed with your insurance agent, from the payout amount to the monthly premium, is at it should be. If there is something you don't understand, ask for clarification. If you know someone who is good with legalese, it's not a bad idea to ask for a second opinion. If something doesn't sit right, or if there are unexpected surprises, you shouldn't agree to the policy.

5. Don't Sign Anything with Blank Spaces

Make sure all the blanks are filled in before you sign your life insurance contract. You never know what someone will add in later - after you've already put your name to it. If there are blank spaces in the insurance contract, don't sign until the insurance company fills them in. You'll be less likely to end up with unpleasant surprises.

6. Keep Copies of Your Insurance Policy and Related Documents

After you've signed your insurance documents, make sure that you have a copy. In most cases, your life insurance company will provide you a copy when you sign the official document. Compare the two to ensure that your copy matches what the insurance company will have on file. Then, if they match, store your life insurance policy documents in a safe place. Be sure to let your family know where these documents are, as well as letting your legal representation know where you keep them. Also, read and keep copies of correspondence from your life insurance agent or company. These may be important notices about or changes to your policy.

7. Read Through Your Statements

You want to keep statements showing that you made payment, as well as reading through these statements. Read your life insurance bill whenever you get it. Make sure that you aren't being billed for services that you didn't actually receive. You should also make sure that the premium is what was agreed upon. Watch for mistakes, and have them fixed as quickly as possible. You don't want to let such items slip through the cracks.

8. Take Your Time

There's no reason to spring quickly for a life insurance policy. In fact, you'd be better off if you tool a few days to think about it. You can comparison shop, and make sure you are getting the best deal. Don't be pressured into making a decision right away by an insurance agent. Thank him or her for the information, and let them know you are going to think about it. While you don't want to take too long, it's not a bad thing to take some time to make sure you are getting the right policy for you, rather than just jumping in and then being unpleasantly surprised later.

9. Don't Pay Premiums in Cash

Premiums paid in cash have a greater chance of being lost, or not being credited. Additionally, there's no real record of cash (unless you get a receipt). If an insurance agent insists that you pay in cash, you should run the other way. Instead, write a check for insurance premiums, or have them automatically debited from your checking account. This way, there is a record of the transaction, and you can prove that you have been paying your premiums.

10. Remember the Difference Between Insurance and an Investment

While whole life insurance can be considered an investment in some cases, in most cases it probably isn't a wise idea to pin your retirement hopes on life insurance that builds cash value. Remember that just because a policy build cash value, it doesn't meant that it will provide you with retirement income. Most of the time, the value built is far from sufficient to cover retirement expenses. Know the difference between life insurance and other investments.

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{ 1 comment… read it below or add one }

Abey January 2nd, 2011
After spending over 10,000 USD over six years, we learnt a hard lesson in 2010. Surrender value was less than $1000. Ask for the surrender value at the end of each year. That will make the 11th point in this list.

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