Over the past couple of years, we’ve all learned just how quickly life as we know it can shift to something very different. In conjunction with Life Insurance Awareness Month in September, now is an ideal time to review your life insurance policy and make sure it’s keeping up with the times — and with any changes to your life or your financial goals. Here are four specific reasons you may want to re-evaluate your coverage.
1. Your insurance needs may have changed
As your life changes, your life insurance needs often change in step, so you may need more or less coverage, or you may want to add or remove certain riders. These types of changes often relate to life milestones, such as births, deaths, marriage, divorce, income adjustments or changing needs of elderly parents.
A policyholder might also change their coverage if they’ve acquired new debt, such as buying a second home with a mortgage or starting a business. On the other hand, someone might consider reducing coverage in other cases, such as when they’ve paid off a large debt, when children become financially independent or when selling a business.
Life insurance needs might also change if a person’s financial goals change, such as wanting to leave a larger inheritance or looking for an additional secure retirement income source.
2. There may be a better policy available.
A review might show that your policy is no longer right for you today. For instance, some people may want to switch from a term life insurance policy to a universal or whole life insurance policy.
In other cases, a review might show that there is a better product available now that wasn’t available in the past. Or you might find that you can save money without sacrificing coverage by changing policies. If you do decide to change policies, an insurance specialist can help you do so with a 1035 Exchange, which may allow you to use or transfer the cash value of your current policy to purchase a new policy, typically without tax consequences.
3. Initial assumptions may no longer be accurate.
Life insurance policies are generally based on assumptions. For instance, a policyholder may pay a specific premium with the understanding it will fund their policy through age 100, based on the insurer’s expectations of future interest rates, investment performance and costs. But those expectations, or assumptions, sometimes prove inaccurate, which can impact the policy.
For example, imagine that an insurance company’s costs increase, but the premium does not increase to cover the difference. In such a case, the premium already paid may not properly fund the policy, and coverage could lapse earlier than expected. That means the policy may cover the policyholder until, say, age 80 instead of 100.
However, a policy review could identify assumptions gone awry, giving the policyholder a chance to make adjustments, such as paying additional premiums, to prevent a lapse.
4. You may want to revise beneficiary designations.
People often change their designated beneficiaries due to births, deaths, marriage or divorce. People may also make revisions based on their overall legacy and estate plan. For instance, they may decide to name one child as beneficiary of an IRA and another child as beneficiary of the life insurance policy. Or they may decide to change allocations — what percent of the death benefit goes to each person.
How to prepare for your life insurance review
It’s generally a good idea to review your life insurance policy annually, but at least once every three years or when you have significant life changes. To prepare for the review, most people have a copy of the policy itself, which shows coverage and other important details, and the most recent annual statement, which should show policy cost, how much you’ve paid in and current cash value. You might also request an in-force illustration, which typically uses graphic tables to project how a policy will perform based on current earnings and other factors.
Since life insurance can be complicated, many people choose to schedule their review with an insurance specialist. Hancock Whitney financial professionals can look at your financial picture and goals, then leverage their knowledge of insurance, tax laws and other trends to make personalized recommendations on life insurance policy adjustments that could benefit you. To learn more about how we can help, contact us today.
The information, views, opinions, and positions expressed by the author(s), presenter(s), and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.
This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.
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