Buying life insurance isn’t something most people do often. For many, it’s a once-or-twice-in-a-lifetime decision made between meetings, after a friend’s recommendation, or because a financial planner said it was time. The process can feel simple: fill out an application, answer some health questions, and sign the paperwork.
But under the surface, there’s far more to understand than most clients realize. The fine print, product structure, and even the long-term behavior of the insurance company can dramatically affect what that policy actually does for you years down the road.
At Summit Legacy, we’ve seen time and again how a little more awareness up front can prevent a lot of frustration later. Here are a few things clients should know when buying life insurance, but often don’t.
1. Not All “Convertible” Term Policies Are Created Equal
Term insurance is the starting point for many people: affordable, straightforward coverage for a set number of years. But one of the biggest hidden differences between term policies is how, and for how long, they can be converted into permanent coverage.
Some term policies are only convertible for a few years. Others allow conversion during the entire term. Miss the window, and you may lose the ability to buy permanent coverage without new medical underwriting.
Even more concerning, many term policies only convert into a single “designated” permanent policy, usually one with higher internal costs or limited flexibility. Translation: the carrier assumes that by the time you convert, your health may have declined, and they price accordingly. The solution is to look for a policy with broad conversion rights and competitive permanent options before you ever sign.
2. The Fine Print Behind the Cost of Insurance
When you own permanent life insurance, a key factor in its performance is the cost of insurance (COI). These are the monthly charges deducted to cover mortality risk. Many clients assume these costs are guaranteed. In fact, they often aren’t.
In recent years, several insurance companies have increased COI rates on older policies, sometimes dramatically, because the contracts allowed it. That’s a tough surprise to absorb in retirement, when premiums can suddenly spike or the policy’s cash value begins to erode.
Private equity ownership has added another wrinkle. When investors buy a life insurance company, their focus on profitability can influence how aggressively the carrier manages in-force policies. If increasing COI shortens policy duration or boosts returns, that can improve their bottom line, but not necessarily yours.
3. Term Riders on Permanent Policies: Know the Rules
Some permanent policies allow you to add a term rider for extra coverage at a lower cost. It’s a smart tool…until it isn’t. Many policyholders don’t realize that these riders may have limited renewal options or rising costs over time. Without careful monitoring, that temporary piece of coverage could vanish, or become unaffordable, just when you still need it.
4. Whole Life Dividends Aren’t Immune to Loans
Whole life insurance is often valued for its dividends – those annual returns paid by mutual insurance companies. But policy loans can quietly erode them. When you borrow against your policy, the outstanding balance accrues interest and reduces the portion of the policy eligible for dividends. Over time, that can significantly impact growth and flexibility.
5. When Carriers Merge, Service Can Change
Life insurance is a long-term promise, but the company that makes that promise today may not be the same one servicing it 20 years from now. Mergers, acquisitions, and restructurings have become increasingly common.
If the acquiring company no longer sells new life insurance, the focus on maintaining relationships can fade. Service is often outsourced to call centers. Agents lose direct support. Policyholders can feel stranded. When you’re evaluating a company, look beyond its credit rating and ask whether it continues to actively sell life insurance and how it treats existing policyholders. An experienced independent broker can provide valuable insight based on real-world experience
6. Low Interest Rates Leave a Long Shadow
For over a decade, interest rates hovered near historic lows. That environment affected the investment portfolios backing many life insurance products, particularly universal life. Some older policies underperformed expectations simply because the assumed crediting rates never materialized.
Even though rates have risen recently, those past years of underperformance can leave a lasting impact. It’s a reminder that periodic policy reviews are essential. What looked sound 10 years ago may need attention today.
7. Don’t Wait for “Perfect” Health
Many clients delay applying for coverage until they lose a few pounds or get their blood sugar under control. It’s understandable, but often a mistake. Health can change unexpectedly, and every year of delay can increase cost. It’s almost always better to secure coverage now, at today’s rate class, and improve your health afterward than to risk becoming uninsurable.
8. Planning for the Future, Not Just Today
Buying life insurance is only part of the equation. Who will service the policy when you’re older? Will your advisor, or their successor, still be available to help your family navigate a claim?
Problems and surprises become much harder to fix in your senior years. Establishing an ongoing relationship with an advisor who understands both the product and your planning goals can make all the difference.
This continuity is especially critical with disability or long-term care claims, which can be tedious, emotional, and complex during an already stressful time.
Life insurance claims, by contrast, are usually straightforward. When delays occur, they’re almost always tied to ownership or beneficiary designations, not to the insurance company itself. The insurer wants to pay; they just need to be sure they pay the right person.
9. Beyond Ratings: How Fairly Does a Company Treat Its Clients?
Most people focus on a carrier’s financial strength rating, and rightly so. But another measure matters just as much: fairness.
Does the company handle claims promptly? Has it been reasonable with past policyholders? Does it communicate clearly when internal assumptions change? A seasoned broker, one who has worked with multiple carriers over decades, can offer perspective you won’t find in any rating guide.
Final Thoughts
Life insurance isn’t a one-and-done transaction. It’s a long-term relationship that can span decades and generations. The best protection comes not only from the policy itself, but from understanding the details, partnering with an independent advisor, and committing to regular reviews.
Because in life insurance, what you don’t know really can hurt you, but what you do know can make all the difference.
