So you have done your reading and worked out what type of life insurance package suits you and you are ready to sign the contract.
But before you do, bear in mind that a life insurance policy is a contract between you and the insurance company and while you should not neglect price, the terms and conditions of this contract are more important. And it is important that you understand what you are signing.
Sure, it may look like a few simple sheets of paper with some really small writing on it, but a lot of people forget that aside from offering some sort of risk protection, that piece of paper is a legally binding document that outlines your rights and obligations should you be involved in an accident.
As a rule, you should always read your policy carefully, cover to cover, including the dreaded fine print.
This will prevent any surprises in case you need to make a claim. Just like any other contract, life insurance contracts have terms and conditions, limitations and exclusions.
If you have a good financial planner or insurance agent, they will remind you to read the fine print and make sure you understand the policy, its terms and conditions, limitations and exclusions prior to accepting it.
As a consumer, it is important that any ambiguity in the contract should be clarified, preferably in writing, before you sign.
To make life easier for the consumer, a policy can often be divided into four broad but distinctive parts: coverage, conditions, exclusions and definitions/general provisions.
The first broad section – coverage – generally defines and details the type of policy purchased such as whether it is a simple medical plan, a hospitalization and surgical plan or a more complicated term plan with riders attached. This section basically tells you what you are going to pay for.
Then comes the conditions, where the legal aspects of the policy are outlined, including the duties and responsibilities of both the insurance company and the policyholder (i.e. premium payment obligations and steps to file a claim). Special procedures for disagreement resolution and policy cancellations are detailed as well.
Then comes the section that a lot of potential policy holders often gloss over or merely glance at, simply because there are too many long words here in really small print – not a good idea - Exclusions.
Unlike the Coverage section, life insurance exclusions details what is NOT covered. This is very important as it highlights the policy’s limitations.
Read this section carefully. Find out exactly what you are NOT covered for. You do NOT want to find out you are lacking coverage you thought you had when you have to make a claim.
A lot of problems between insurance companies and policyholders arise because the latter have not read this particular section.
Finally, there is the broad section for definitions or general provisions. This is the section where the rights of the policyholder and the insurance company are defined. This area is another section of fine print that can be equally as tricky as Exclusions, as it can trip you up when you are making your claims.
