Fear takes many forms in the financial world. The fear of destitution plays a significant role in the field of life insurance, just as the fear of death plays a role in all forms of insurance. Life insurance does not and cannot prevent death from occurring; this kind of insurance it can only protect your family from the financial consequences of your premature death.
A financial provider with dependents uses a life insurance policy to assure them of income if he dies. Unfortunately, such an insurance policy can have vulnerabilities. If you have a policy in place to protect your spouse or children, what happens if the insurance policy does not pay?
Life Insurance Doesn't Always Pay
This is a troubling question and deserves a clear answer. The truth is the life insurance policy has several items within its detailed text known as exclusions. These events or conditions can invalidate a life insurance policy, in which case the named beneficiaries will not be paid.
A few common exclusions include war and suicide. War is an obvious and necessary exclusion, but soldiers who need life insurance can usually sign up for a policy available on a group basis or from the government. Suicide is another self-explanatory exclusion. A morbid type of fraud exists whereby a suicidal person takes out a large insurance policy so his beneficiaries will get the money.
The most important exclusion is material misrepresentation of yourself on your insurance application. If you omit certain key items, like the fact that you are seriously ill, or you outright lie about them, the insurance company will deny you coverage and declare the policy void. This happens all the time: It's known as insurance fraud. It is both illegal and costly. Exclusions like these protect the insurance company from fraud and from virtually uninsurable risks, such as suicide or being killed in action during a war.
Financially Troubled Insurance Companies
If you're honest and toe the line, exclusions should not be a problem. However, there is the issue of the status of the insurance company itself. Suppose the company that wrote the policy goes bankrupt. What happens then? All 50 states have state insurance guaranty funds set up to protect policyholders if their insurance company goes bust. You shouldn't have a thing to worry about in this regard. While this means that you are protected, it does not excuse you from carrying out your due diligence.
Investigating an insurance company beforehand can give you valuable life insurance information that could save you oodles of time and money. Look up the financial rating of the insurance company by heading to a rating agency's website like Standard and Poor's or Moody's. If you are suspicious of S&P or Moody's, check out an alternative rating agency such as Egan-Jones. Check with the Better Business Bureau about the insurance company and its local branch. Finally, look up your state insurance department, which should have a list of licensed insurance companies operating in the state. You will be safe with a licensed company if the worst happens.
TermLifeInsuranceNews.com is dedicated to helping people make smart, no-nonsense decisions when it comes to buying term life insurance.