Here are eight misconceptions people have about their own policies and why reviewing your policy now and then is a good idea.

1) People don’t know what their basic amount of insurance (policy face amount)  is.  Usually people think they have more coverage than they really do.

2) Some people don’t even know that one or more of their policies has lapsed for non-payment.  I have them dig out their bank statements and gosh darn-it they can’t find that automatic bank draft from their insurance company anywhere on that statement!

3) Time flies.  A lot of times someone will tell me that they have a 15 year term policy that they got 5 years ago, but when we get the policy on the table they have had it for 10 or 11 years and the policy won’t even last until their kids are out of high school, let alone until their mortgage is paid off.

4) There is this misconception that a term policy becomes a paid-up policy at the end of the term (meaning no premiums are due, ever).  This couldn’t be further from the truth.  Once a policy reaches the end of the term (10, 15, 20 years, etc.), the policy premium is no longer fixed.  The renewal premium commencing on the year following the end of the term usually goes up five to ten times the normal premium and then each year continues to go up from there!  It doesn’t take long for the premium to get too expensive to keep, at which point the policy terminates for non-payment.

5) A lot of people get this one wrong…     “I have a group policy and it’s portable.  I’ll be able to keep paying my $11.14 per pay-period premium forever, even after I retire.”     Sorry folks…   rarely are group term policies portable and even if they are, the premiums usually go up every 5 years (become 5 year renewable term products).   You will start to notice major increases in premium starting at age 50, 55 and by age 60, it becomes more like a Mercedes payment.  And even worse, if you wait that long to find out what happens to your premiums, you may no longer be insurable, or your premiums will probably be so high due to your older age that you won’t be able to buy much insurance.  If you only have a company group term policy, you should supplement that group term coverage with a privately owned policy that you have complete control over.

6) People realize that they are under-insured.  That $250,000 policy sure seemed like a lot of coverage 8 years ago, but now it won’t even pay off your mortgage.  Also, as your income goes up over time, you need to increase your coverage so that if you die while you are still in your working years the death benefit will cover as many years of lost salary as possible for your family.

7) It’s funny how term policies end right about the age range that people drop dead of heart attacks, strokes and cancer.  A 40 year old that purchases a 30 year term loses his coverage at age 70. A 50 year old that buys a 20 year term policy also loses that policy around at age 70.  And guess what… most companies won’t sell that 30 year term policy to a 50 year old.  They don’t want you owning that policy too late in life.   What can you do? Convert your term to a guaranteed Universal Life policy, before it’s too late.

8)  Is your Universal Life policy that was supposed to last forever suddenly falling apart?  Did you receive a letter from the carrier that you need to start paying more in premium?  That happens with a lot of older Universal Life policies.  If you bought it back when interest rates were high (in the late 80′s or 90′s for example) then you probably have a policy that was supposed to make a lot of growth in cash value.  Certainly that did not happen though, did it?  Interest rates dropped to all time lows and that meant that your cash value did not grow to anywhere near its projected value.  A qualified agent should be able to assist you in either prop-ing up that old policy, or better yet, replacing it with a newer “guaranteed” Universal Life policy that has less moving parts to go wrong.  Don’t worry… your cash value can be rolled into your new policy, which will help keep your premiums down too!

So the point here is that you should know what you have.  Get help from an experienced, licensed professional.  They will review all of your policies and show you the good and the bad points and help you make an informed decision on replacing, converting or riding out your current policy.

One of the most important considerations when buying a universal life policy is to make sure that the premium paid is high enough to build a sufficient cash value account, so that the policy will last your entire life.

Here’s why…

You see, the cash value that builds up over time will eventually be used to help pay your higher premiums as you age.  So even though the internal cost of the insurance goes up as you age, the concept behind the universal life policy is that you pay a level premium from the day you buy it until the day you die.

That way you’re not paying a tiny amount when you’re young and making money and a ridiculously high amount when you are old and living on a fixed income. Instead you are paying a reasonable amount from the day it’s issued until the day you die and the premium never changes.

A Universal Life policy builds cash value, which allows the policy to last an entire lifetime by using the cash value account in your older age to help supplement the higher premiums.

Universal life policies are sometimes known as Flexible Premium Adjustable Life.  It uses the words Flexible Premium because the owner of the policy can set the premium to be whatever amount he/she wants, as long as the premium is at least high enough to cover the Minimum Premium.  It also uses the words Adjustable Life because the policy owner may also adjust the amount of insurance or Face Value of the policy.  Keep in mind that when raising the face amount, the insured will usually have to undergo additional underwriting, but when lowering the face value, it usually only requires a written notification to the insurance company, so proceed with caution. You don’t want to lower your coverage thinking that you can automatically raise it back up later.  You must qualify again to raise it and that may mean additional blood work, medical history and other underwriting requirements.

But be sure you speak with a qualified insurance agent when making any adjustments so that the policy will last long enough to meet your goals, based on the premium and face amount you select.

You now submit your accident claim ($2,200) to the accident plan carrier and you receive a check for $2,100 because you have a $100 deductible with your accident plan. You then pay the $2,200 bill using the money you received from the accident carrier plus $100 of your own money.  Total out of pocket to you is only $100.

Secondary benefit… your health insurance company has recorded that you have satisfied $2,200 of your $5,000 PPO plan deductible, leaving your remaining deductible at only $2,800 for any future accidents or illnesses.

So in this case,  if you suffer an accident and have an accident policy, your out of pocket costs are $100.  If you don’t have an accident plan, your out of pocket costs would have been $2200.

For more information on available supplemental accident plans, click here.

In today’s expensive health insurance environment that we live in, many individuals and families are forced to go with high deductible health plans to keep down our health insurance premium costs.  Since an accident insurance plan often pays directly to you the insured, those reimbursements are typically used to to cover your health plan’s high deductible.  Therefore the predominant usage of accident plans is as a supplement to a high deductible health plan, rather than as a standalone insurance plan.

Term life typically comes in 10, 15, 20, or 30 year terms. Many company life insurance polices are even issued as 5 year term.  What does the term length mean?  Well the day your policy is issued, the clock starts.  You pay the same low premium for the entire length of the term. Once your term period is reached (after 15 years for example), the policy renews. The renewal rate is typically 10 times the original term premium and even that price goes up every year.  So essentially once your renewal finally arrives, you typically get priced out of the policy at that point and usually just allow the policy to lapse out.

The mistake some people make is that they think the policy becomes paid up after the term and no more premiums are due after the term is up (sort of like an auto or home loan).  Then they are disappointed to learn that they can’t keep the policy.  At that point their only hope is that they still qualify for another term at an affordable premium.

Child only policies are now guaranteed issue.

A “child only” policy is a just that… a health insurance policy with no adults enrolled.  Since September 23rd, and the initial rollout of the Patient Protection and Portability Act, these child only policies have become guaranteed issue, meaning that kids cannot be turned down for health insurance.  Soon after this mandate went into effect many carriers stopped offering policies as child only.  In fact in California, only a couple of the mainstream carriers are offering these child only policies.  But beware… guaranteed issue doesn’t necessarily mean a standard rate (see this post).

Can kids under 19 be declined?  No.   Can they be rated up (charged extra premium) for pre-existing medical conditions? YES!   I thought guaranteed issue meant all kids would be accepted under standard pricing.  This is not the case.

Apparently if the child-only application is received during open enrollment (January 1st thru February 28th, or on the child’s birth month), they can be rated up in price up to 200% of the standard rate.  If they apply for the plan outside of the open enrollment period, they can be rated up as much as 500%, or 5 times the standard rate.  Now you know how child-only policies work.