Facts of Life Insurance – Policy Review
How different was your life 5 years ago? How about 10 years ago? Family. Technology. Job. Investments. Gas prices. The only thing certain in this world is change.
We meet clients all the time that don’t want to think about reviewing their insurance situation or think everything is fine. As an advisor you are doing a disservice if you aren’t asking those questions.
Reviewing your existing life insurance is something that should be done every few years. You aren’t going to mess up your current policy by requesting an inforce illustration. It may not be performing the way it was designed to run or there simply may be a better product available now that wasn’t before.
New surrender charges – That could be a factor but, if a new policy is still a better fit then that shouldn’t deter you from making a switch. There are policies now that have a high early cash value option where your premium money is guaranteed available from year 1.
New contestable period – You weren’t worried about that when you first bought the policy so it shouldn’t be an issue. If you don’t materially misrepresent(lie) on the application then you have nothing to worry about. Even still the issuing company could come back and tweak the policy to represent what you should pay for the same coverage if they find out. The insurance company really isn’t in the business of doing that.
Bad decision – Many times captive agents will use fear mongering to try and keep policies on the books to enhance their numbers. Don’t let that sway you. Get an unbiased perspective.
Analogous to mortgage rates – If you have ever refinanced your house then you realize how important the interest rate variable is to the equation. There are interest rates in life insurance as well as mortality tables. Back in the 1980’s when interest rates were drastically higher cash value projections were based on double digit returns. Now 3-4% is more likely. You wouldn’t keep paying a higher interest rate on your mortgage if you could drop your rate enough to reduce your payments or trim down your time period for paying off your house.
Along with interest rates mortality tables have changed with people living longer. Insurance companies have updated their policies to reflect that which in turn lowers the cost of insurance.
Family Dynamics – As people age the amount of coverage changes as well. When you are first married you may primarily be looking to replace income for the deceased spouse. Fast forward 10 years later and maybe you have 3 kids to factor in along with a bigger house and college. There is a need for more coverage. Fast forward another 10 years and the kids are out on their own. You have funded retirement accounts and good portion of your house is paid for. Maybe now you need less coverage.
Conclusion – Reviewing your insurance needs just like any other asset shouldn’t be ignored. The insurance landscape is ever changing. If you aren’t elbows deep in it(and why would you) then you wouldn’t know if you can improve on what you have or if it is just fine. Beyond the insurance industry reassessing your own financial situation as it pertains to risk management is equally important.
Enjoy out video….