Your life insurance needs are subject to change, just like the rest of your financial life. Perhaps you bought a policy in your 40s for income replacement, and now your needs have shifted to wealth transfer. Or maybe you remarried and had another child—life events that demand a review of your beneficiary designations. There are many examples that demonstrate the same point: Review your life insurance policy on a regular basis is crucial.
Here are five important reasons you want to review your life insurance policy:
Maximize Your Death Benefit and Reduce Your Premium Payments
Part of a policy review involves making sure that the policy you originally purchased is still meeting your needs. If your policy is primarily intended for wealth transfer — to pass more money in a tax-efficient way to the next generation—you may want to focus on maximizing your death benefit.
Certain policies will maximize your death benefit while reducing your premium payments because they focus less on accumulating cash value. Reviewing your options can significantly enhance the amount of money you leave to future generations of your family, the charities you support, or both.
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Understand Your Policy Guarantees
Is your policy guaranteed for life? Many policies are sold using illustrations and projections that don’t pan out over time because they are based on assumptions and not guarantees. Both types of policies have a place, but it is important to understand which you own and how it is performing. This might happen because interest rates have remained low for decades and insurance companies have trouble earning a spread over the premiums they collect. It may also happen if mortality charges are higher than expected when the policy was originally priced. Either way, a policy review on a regular basis is a good idea.
If you don’t review your life insurance policy at least a few times each decade, you could end up in a situation in which your policy is in danger of lapsing if you don’t shell out significantly higher premiums. Having an experienced advisor who can request guaranteed projections from your insurer and help run cost comparisons is crucial.
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Check the Ownership and Registration of your Life Insurance Policy
The way your policy is owned is massively important, particularly when it comes to proper estate planning. If you maintain “incidents of ownership” over your policy, in general, by owning it in your own name or inside a revocable trust, the policy proceeds will likely not pass outside of your estate, and doing so could subject millions of dollars to unnecessary estate taxation. The proper establishment of an irrevocable life insurance trust is complex and should be done by experienced professionals.
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Gain Access to Valuable Riders
You may or may not know what riders you have on your current policy. Many of us focus on the major details, such as death benefit and premium amount, and we don’t notice riders such as “waiver of premium” or “accelerated death benefit.” These items matter, and there may be riders that you need but don’t have.
Your existing policy probably doesn’t allow you to add on most riders at this point, so reviewing what is currently available in the market is a worthwhile exercise. For example, the ability to accelerate the death benefit and use it for long-term care may help you and your family avoid a huge headache down the road.
Our advisors can help you understand and think through scenarios like this that may not be on your radar. We cannot emphasize this enough.
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What Is the Strength of Your Insurance Company?
The insurance company you choose to issue your policy is one of the most important decisions you can make, yet it’s often overlooked. The promise of an insurer to pay a claim is only valid to the extent that the company can afford to pay the claim many years into the future.
Sometimes a smaller, less stable insurer may offer the same death benefit with a lower premium, but that is not necessarily a better deal if the company doesn’t have appropriate assets to back the claim. Along the same lines, if the company that originally issued your policy is no longer in stellar financial condition, it may be wise to move your policy to a new company that can offer the peace of mind the policy was intended to provide.
Several agencies, such as AM Best, Moody’s, and Standard & Poor’s, rate the financial strength of insurance companies. This data is often posted on the insurance company’s website and on the rating company’s website as well.
The advisors at Howard Kaye have reviewed thousands of policies. We know what to look for when reviewing policies for our clients. Let us review your policy so you can have peace of mind over one of your most important financial vehicles. Contact us today at 800-DIE-RICH.
