Why Review In-force Life Insurance Policies
When is a good time to review your life insurance policies? Most people after purchasing their life insurance, put it in a drawer and forget about it hoping that it will be there when needed. Often times this is not the case. A periodic review of one’s current policies is critical to maintaining the efficacy of the policy.
Over the past several years, due to Covid and the pandemic, changes in our economy as well as the insurance market place are now calling for re-examination. Policies originally designed and sold based on interest rates and expense assumptions may no longer hold true. This can put a policy in danger of lapsing or worse, failing to meet the client’s goals in the foreseeable future. Additionally, new generations of life insurance products continue to enter the market place, many with much more robust features and benefits along with very competitive death benefit guarantee options.
The following represent reasons for performing in-force policy evaluations:
You may be paying more premium than is necessary.
Due to changes in pricing and design, you may be able to obtain more value for the same premium dollar.
There are new features that have been added to policy design such as Long-Term Care or chronic illness riders.
Your policy may unintentionally lapse, especially if there are accumulated loans on the policy. Not only will it lapse terminating the policy death benefit, but there could also be significant tax liabilities.
Besides the above reasons for conducting an in-force review, consider the following reasons:
Major life changes such as marriage, birth of a child, divorce, or death of a family member.
A review will usually consist of questions and a request from the insurance company for an in-force illustration run with various assumptions. This may include several in-force illustrations to determine whether the policy still meets the goals of the insured and/or owner. The following are questions which should be asked.
Do the premiums or benefits meet the original objective or do they vary from year to year?
Do the actual benefits continue to grow inside the policy?
What is the comparison of the premiums and/or benefits when looking at the guarantees vs. the current assumptions?
Will premiums paid and received at different times affect the interest on the policy and the assumptions used for paying?
Is it possible to utilize the cash values and what affect will it have on the policies long-term staying power?
Is it possible to convert the current policy into another form of insurance or annuity?
Are the beneficiaries still appropriate from when the policy was purchased?
Is the ownership causing taxation of the policy?
Are there contingent beneficiaries?
If you have not reviewed your policy in the last 3 years, it is critical that this be done to make sure your policy will stay the course as you had originally designed it to.
Please feel free to contact me if you have any questions or would like us to perform a free evaluation for you.