LIFE INSURANCE
Consumer Education and Advocacy Unit
Moderator: Patricia Dorn
patricia.dorn@maryland.gov
Agenda: Life Insurance
• Introduction to the Maryland Insurance Administration
• Types of Life Insurance
• Frequently Asked Questions
• Shopping Tips
• Viatical Settlements
• Finding a Missing Policy
• Additional Resources
• Contact Us
2
What is the Maryland Insurance Administration
The Maryland Insurance Administration (MIA) is the state agency
that regulates insurance in Maryland. The MIA:
Licenses insurers and insurance producers (agents or brokers).
Examines the business practices of licensees to ensure compliance.
Monitors solvency of insurers.
Reviews/approves insurance policy forms. Reviews insurance rates
to ensure rates are not inadequate, excessive or unfairly
discriminatory.
Investigates consumer and provider complaints and allegations of
fraud.
What is the Maryland Insurance Administration?
If you feel that your insurer or insurance producer acted improperly, you have the right
to file a complaint. Examples of improper actions include:
• Improperly denying or delaying payment of all or portions of a claim;
• Improperly terminating your insurance policy;
• Raising your insurance premiums without proper notice;
• Making false statements to you in connection with the sale of insurance or
processing of insurance claims; and,
• Overcharging you for services, including premium finance charges.
Types of Life Insurance
Many people purchase life insurance (and annuities) to
provide security for themselves and their loved ones.
Your need for life insurance varies with your age and
your financial responsibilities. All policies are not the
same. Some provide coverage for your lifetime and
others cover you for a specific number of years. Some
build up cash values and others do not. Let’s look at
the different types of life insurance.
Types of Life Insurance
Term Insurance
• Term insurance covers you for a term of
one or more years.
• It pays a death benefit only if you die
during that term.
• Term insurance generally offers the largest
insurance protection for your premium
dollar, but generally does not build up cash
value to use in the future.
• Generally, term insurance offers lower
premiums in early years but premiums may
increase as you get older.
Types of Life Insurance
Permanent Insurance
• Permanent insurance – (which includes types such as
universal life, variable universal life and whole life)
provides long-term financial protection. These policies
include a death benefit and, in some cases, cash savings.
Because of the saving element, premiums tend to be
higher.
• Whole Life – Fixed premium payments, guaranteed death
benefit and cash value growth.
• Universal Life – Premium payments may be flexible or
fixed. Provides guaranteed death benefit as long as your
policy is in effect. A minimum guaranteed interest rate is
credited to the cash value.
Types of Life Insurance
Permanent Insurance
• Indexed Universal Life – Like Universal Life, premium payments
may be flexible or fixed and the death benefit is guaranteed as
long as your policy is in effect. Interest credited to the cash
value is linked to an external index, such as the S&P 500.
• Variable Universal Life – A category of Universal Life, that offers
flexible or fixed premiums, but the cash value is tied to the
performance of one or more investment accounts, similar to
mutual funds. The policy owner chooses the investment
accounts. As with any investment products, the value of your
investments may vary over time, and may in turn cause your
death benefit and/or cash value to increase or decrease.
Types of Life Insurance
Consumer Advisory - Universal Life Insurance
• A Universal Life insurance policy is a type of permanent
insurance with a flexible or fixed premium. You choose the
premium you pay. There is a minimum required premium at
issue.
• Part of your premium pays for the expense charges and any
remaining funds are put in the cash value of your policy. Your
cash value will earn interest at the interest rate in effect for
that year (as declared by the company annually). This interest
rate will equal or be more than the guaranteed interest rate
stated in the policy.
Types of Life Insurance
Consumer Advisory - Universal Life Insurance
• All expense charges, such as cost of
insurance charges and surrender charges,
are stated in your contract.
• As you get older, your cost of insurance
charges increase. If your planned premium
isn’t enough to cover monthly deductions,
additional premiums will be required to keep
your policy in force.
Types of Life Insurance
Consumer Advisory - Universal Life Insurance
If you bought your policy a while ago, you may have selected the
amount of premium you intended to pay based on the interest rate in
effect at the time. Since interest rates have changed through the
years, you may not be getting the same rate of return illustrated at the
time of sale, especially if the interest rate was higher than it is now.
Based on the current declared interest rate, you may be required to
pay additional premiums. Sometimes people reduce the death benefit
to avoid paying higher premiums, or to make the payments more
affordable. If you are considering lowering the death benefit, it is a
good idea to consider your current and long term financial needs. You
may also want to consult with a financial advisor.
Frequently Asked Questions
Can someone else take out a policy on my life?
• Yes, but a stranger cannot buy a policy to
insure your life in Maryland. To buy a policy
insuring someone else’s life, certain
conditions must be met.
Frequently Asked Questions
What conditions must be met before someone can
take a policy out on my life?
• Although there are some exceptions, if it is not a
group policy, generally the person whose life is to
be insured must:
• be legally competent to enter a contract; and
• apply for or consent in writing to the policy
unless an exception applies.
Frequently Asked Questions
What conditions must be met before someone can take a policy out on my life (con’t)?
• Additionally, the benefits must be payable to you, your personal representative, or
someone who has an insurable interest in your life unless the policy is to be
purchased by a charitable, benevolent, educational, governmental or qualified
religious institution, or a qualified trust for the benefit of such an institution. If the
policy is to be purchased by one of the listed types of entities, you or your legal
representative must designate the entity as the irrevocable beneficiary of the
insurance policy.
• An insurable interest is required to obtain a life insurance policy on another.
Frequently Asked Questions
When can someone buy a policy on my life without my
consent or me signing the application?
• If the purchaser is your spouse.
• You lack the legal capacity to consent to life insurance
and the person purchasing the policy has an insurable
interest in your life.
• A parent, stepparent, or spouse is purchasing a family
policy that insures two or more family members; or
• The person to be insured is a minor, and the
purchaser either has an insurable interest in the life
of the minor, or the minor is dependent upon the
person for support and maintenance.
Frequently Asked Questions
Who has an insurable interest in my life?
• People with an “insurable interest” in your life generally includes you and individuals
closely related by blood or law to you, such as a spouse or children. But others, such as
your employer or business partner might also have an insurable interest.
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, including your estate, a family member, a
charity, friend, or a stranger.
Frequently Asked Questions
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.
Frequently Asked Questions
Some life insurance ads claim “you can not be turned down.”
What’s the catch?
• Such ads are referring to “guaranteed issue” policies, where the
company asks no health history questions. The company knows
it is taking a risk because people with bad health could buy
their policies. The company may balance the risk by charging
higher premiums or by limiting the amount of insurance you
can buy. Sometimes the premiums can be almost as much as
the insurance benefit to be paid to the beneficiary. Be sure you
clearly understand the policy you are purchasing, and
remember to speak with an advisor if you do not.
Frequently Asked Questions
Term Life Insurance
Why is term life insurance often called
“temporary” insurance?
• Insurance producers sometimes refer to
term insurance as “temporary” because the
policy only lasts for a specific period.
Frequently Asked Questions
Term Life Insurance
What do I get when I buy term life 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.
Frequently Asked Questions
Term Life Insurance
Do I get any benefit if I don’t die during
the term of my policy?
• The policy will not pay any benefits
Frequently Asked Questions
Permanent Life Insurance
I understand my permanent policy would be “fully paid up” at age
65. What does that mean?
• This means that you have made enough premium payments to
cover the cost of insurance for the rest of your life. The company
plans to use the cash value to pay premiums until you die. If you
take out the cash value, there may not be enough to pay
premiums.
Frequently Asked Questions
Permanent Life Insurance
What happens to the cash value in my policy when I die?
• It depends upon the terms of your policy, always read the terms of any life
insurance policy carefully. Under the terms of some policies, when you die, the
insurer will pay only the death benefit no matter how much cash value you may
have had in the policy the moment before you died. But some whole life policies
pay both the death benefit and the cash value when you die. It is important to
remember though that whether your policy pays only a death benefit, or also the
cash value, any loans (including interest) taken out against the policy that you
have not repaid will be subtracted from the death benefit. The result is that your
beneficiary could wind up with less than the face amount of the policy.
Frequently Asked Questions
Permanent Life Insurance
An insurance producer has suggested that I buy term instead of whole
life. Does it make sense to buy term and invest the difference?
• It depends upon your circumstances. Factors to consider can include:
• as you get older, term premiums increase;
• by investing the difference, you could use your investment to pay
the higher cost of insurance in the future; and
• if your health deteriorates, you may not be able to buy a new
policy.
You may wish to consult a financial advisor when making this decision.
Shopping Tips
Factors you may want to consider when
shopping for a policy:
• Determine what you want the life
insurance to do:
• Is it to pay burial expenses?
• Will the death benefit be used to
offset the income you previously
provided?
• How much coverage will you need?
• How much can you afford?
Shopping Tips
Factors you may want to consider when
shopping for a policy:
• Is it possible the premium will increase, and
if so, will you be able to afford it in the
future?
• Does this policy require medical
underwriting? This may include answering
a series of health-related questions and
may include a medical exam.
• Does the policy include a waiting period?
Shopping Tips
Factors you may want to consider when
shopping for a policy:
• Are you considering canceling an existing
policy? Make sure you understand the
consequences of canceling your current
policy.
• Understand the policy you are purchasing.
Talk to a trusted family member or
professional if you are unsure if the policy
makes sense for you.
Shopping Tips
Once you have purchased your policy, place a
current copy of your policy with your will or
estate paperwork in a safe place where your
family or beneficiaries will look for it and have
access. And most importantly, make sure your
loved ones know where they can find the policy.
Insurance Fraud
Older Adults are often targets of insurance fraud,
particularly in regard to life and health insurance.
Be wary of a salesperson or telephone caller who:
• Contacts you unsolicited. The salesperson
probably has obtained your information through
a mailing list.
• Uses high-pressure tactics. Common tactics
include offering a “last-chance deal,” or
“limited offer” or attempting to pressure you to
sign forms without reviewing them.
Insurance Fraud
Older Adults are often targets of insurance fraud, particularly in regard to life and health
insurance.
Be wary of a salesperson or telephone caller who:
• Urges you to cash in an existing annuity or life insurance policy to buy a new annuity, life
insurance policy, or other investment. Generally, annuities and life insurance are worth
more the longer you keep them. Changing to a new annuity or policy may cause you to lose
money over the first three to five years. You also may be charged a penalty if you withdraw
money from your annuity early. Discuss the tax consequences of early withdrawal with
your tax advisor.
Insurance Fraud
Older Adults are often targets of insurance fraud,
particularly in regard to life and health insurance.
Be wary of a salesperson or telephone caller who:
• Claims to be from Medicare, Social Security, or
another government agency. An insurance producer
or broker who claims to be associated with the
government is breaking the law.
• Wants to sell you a package policy that includes
several different benefits, some of which duplicate a
policy you already have or include coverage you do
not need.
You are encouraged to report insurance
fraud activities to the Maryland
Insurance Administration's Insurance
Fraud Division. You need not give your
name. Simply call 1-800-846-4069.
Consumers may also email fraud referrals
by sending completed forms to
fraud_referrals.mia@maryland.gov
.
Insurance Fraud
Viatical Settlements
A viatical settlement is a written
agreement for the sale of a life
insurance policy to a third party. The
owner or certificate holder of the life
insurance policy (the viator) sells the
policy for an immediate cash benefit.
Viatical Settlements
At one time, most viatical settlements were for people with
a life-threatening illness. Now, individuals who are not
facing a health crisis may sell their life insurance policies to
obtain cash.
For more information, including consumer tips and
questions to ask, read our brochure at:
https://insurance.maryland.gov/Consumer/Documents/pub
lications/viatical.pdf.
Finding a Missing Policy
Video: Locating a Missing Life Insurance Policy or Annuity Contract
1. Check bank accounts and bills for evidence of an existing policy.
2. Check safety deposit boxes and online accounts. If you located a policy with contact
information, you may contact the insurer directly. If you are missing contact
information for the insurer, or the company is no longer in business, please contact
the Maryland Insurance Administration for assistance at 800-492-6116.
Finding a Missing Policy
If your search has not uncovered any leads, the National Association of Insurance
Commissioners can help you. This service is free of charge.
Link: NAIC Policy Locator
https://eapps.naic.org/life-policy-locator
Make sure you have as much information as possible. The insured’s legal name, birthdate, death
date, and Social Security number are required. Submitting previous legal names and addresses
will allow the companies to conduct a more accurate search of their records. Anyone who
believes they are a beneficiary, next of kin, or representative can request this information.
Final Note – Life Insurance
It is important that you understand the life insurance policy you own, or
are considering purchasing.
Contact your insurer or insurance producer for advice if you don’t
understand the policy
It is a good idea to:
• Read your policy, and to review any updates or changes made to your
policy carefully; and
• Review all statements carefully. If you find your statement confusing,
please don’t toss it out or file it away until you’ve spoken to your insurer
or insurance producer and thoroughly understand your statement.
37
Additional Resources
Consumer Guide to Life Insurance
https://insurance.maryland.gov/Consumer/Documents/publications/lifeinsurance.pdf
Consumer Guide to Life Insurance - Spanish
https://insurance.maryland.gov/Consumer/Documents/publications/lifeinsurancespanish.pdf
Life Insurance for Military Personnel
https://insurance.maryland.gov/Consumer/Documents/publications/militaryinsurance.pdf
Information about pre-burial needs from DLLR
http://www.dllr.state.md.us/license/cem/cemtips.shtml
Questions
