Three Tips for Reviewing Life Insurance Coverage

In this brief article, we discuss three areas we explore in a review of life insurance coverage. 

1. Is There a Better Solution?

The insurance industry is continually evolving and product offerings change as demographics, technology, economics and other factors influence what is available in the marketplace.  Many life insurance premiums have come down in price over the years, so clients with older policies may find that a less expensive solution is now available.  Some carriers have redefined what health issues they will or will not accept. Consequently, previously uninsurable individuals may now find that a solution exists.  Moreover, new products, such as life/long-term care hybrid policies, have entered the marketplace. We look for solutions such as these that may be a better match with our client’s evolving needs and may often also be more cost effective.

2. Is the Policy Performing?

External factors such as policy dividends, interest rates, or financial strength of the carrier can have an effect on policy performance.  Policy premiums or policy cash values could be impacted by a change in such variables, so it is critical that policies be evaluated periodically to ensure that they are living up to original expectations.  Unfortunately, the low interest rate environment of the past several years has left many policies underperforming the original projection and often the owner's only recourse is to pay more premiums in order to keep the policy in force. 

3. What Is the Cost of Getting Rid of the Policy?

When it is determined that a life insurance policy is no longer needed, we need to understand the ramifications involved in getting rid of it.  For some policies, the process is as simple as not paying the next premium due.  But for other policies, there can be fees assessed or significant income tax consequences to surrendering a policy.  We want to thoroughly understand the costs associated with exiting a policy and, if there are tax issues, weigh the different options for mitigating or deferring the associated tax.

As wealth managers and Your Family’s CFO, one thing we can count on is that financial plans will change over time and consequently the tools that we use to implement said plans must change, too.  The importance of periodically reviewing life insurance policies cannot be overstated.  We invite you to contact us if you have a life insurance policy that has been neglected so that we may help you determine whether it is serving an appropriate role in your overall financial plan. You may also enjoy our previous article that discussed the psychological barriers that prevent or delay people from getting life insurance, and the dangers inherent in doing so. Please contact Cecil Staton at cstaton@smithhowardwealth.com