Shopping for life insurance can be confusing, and one of the most frustrating factors is the numerous industry terms that are tossed around. The majority of consumers have no idea what “in force,” “contingent beneficiary,” or “face value” actually mean.
The problem is, if you don’t completely understand your policy, or what you are buying, you may have coverage gaps and end up overinsured or, even worse, underinsured.
While understanding all of these terms is important, the one we are looking at in this article is “in force insurance” or “life insurance in force.”
The term “in force” can be used when referring to just about any financial contract, but it’s most common usage is in the world of insurance.
Let’s first nail down the definition of “in force.” It simply means that the policy is paid up and active, so as long as you are paying the premium for your life insurance (or any other insurance product for that matter) , your policy is considered “in force.”
If for some reason you do not pay your life insurance bill, your policy will no longer be “in force” and will considered “lapsed.” If your policy is lapsed and you die, your insurer will not pay out on your policy. They will only pay a death benefit if your policy status is “in force.”
Now let’s look at what the phrase “life insurance in force” means. This term can be used by a person when talking about their own insurance portfolio or by an insurance company when discussing their financial strength.
Individual: When a person uses this term, it simply refers to the total amount of all life insurance policies that they currently have that are paid up and active.
As an example, if a person has a $500,000 term life insurance policy, and a $250,000 whole life policy, and both policies are paid up, they have $750,000 in life insurance that is “in force.”
If for whatever reason this person lets their $250,000 whole life policy lapse (by not paying their bill), they will then have $500,000 of life insurance in force.
It should be mentioned that lapsed policies can usually be reinstated if you pay up the premiums within a certain time period, which will vary by insurer.
Insurance Companies: When an insurance company, or an agent trying to sell you a policy, talks about the amount of “in force life insurance” of that particular insurer, they are trying to make you feel confident about the financial strength of the insurance company.
When referring to an insurance company, this phrase simply means the value of all life insurance policies that the company has issued that are paid up and current. As an example, if they have issued life insurance policies that have a value of $2 billion and all of their policyholders have paid their premiums, that insurance company will have $2 billion of “in force life insurance”.
When using this term, they have to subtract any lapsed policies. For example, if they had $500 million in policies that were lapsed because the policyholders didn’t pay their premiums, the amount of “in force life insurance” would drop to $1.5 billion.
Another way to think about this term is that it is the amount of money that the insurance company would have to pay out if all of their policyholders died on the same day.
Most major insurance companies have in force insurance numbers in the hundreds of billions.
When it comes to individuals, this term means very little, it is just an easy way to tell your friends, family or insurance agent how much life insurance you’re currently carrying.
When dealing with life insurance companies, this term is a bit more important. It indicates the financial strength of the company, and whether it is growing or shrinking. The majority of insurers put data about the growth of their “life insurance in force” in their sales materials. If the company is growing, the “life insurance in force” chart should show an upward trend.
While nobody can predict the future, upward growth in “life insurance in force” indicates that the company is growing their assets under management. This gives them more money to invest ,which is how they generate income to pay claims.
In general, upward growth in the life insurance in force chart is an indicator of financial strength. If the “insurance in force” chart shows downward growth, you may want to consider another company.
Insurance terms can be confusing, and “life insurance in force” is only one of countless terms that can be hard to understand. A Trusted Choice® agent will be happy to take the time to explain any terms that you find difficult.
If you are currently shopping for life insurance, a Trusted Choice agent can do all of the legwork of chasing down quotes and then present all of the options to you. They can also explain the policy terms and answer any questions you may have.
Contact a Trusted Choice agent today to get started on a life insurance quote.