The One That Got Away: A thorough review of your existing life insurance policies is necessary, not optional
Burns M. Lowry CLU, ChFC, AEP
When you look at all the aspects of your affairs, it might seem like life insurance is the one tool you can put in place and forget about. Since many affluent families purchase insurance for estate planning or business succession purposes, there isn’t a huge impetus to reevaluate it year after year.
Unfortunately, this misconception is one of the great myths that can disrupt a family’s best intentions. Insurance policies are complex financial vehicles that can change as radically as the stock market, and the internal pricing components fluctuate with the rise and fall of interest rates. This means that if you purchased insurance in the past twenty years, and you’ve been paying your premiums on time every year, your policy may not be performing as you expected. Bigger policies may have bigger problems.
To check the health of your policy, meet with your professional advisors and develop a game plan to become aware of the following elements:
- Projected vs. actual:
What was the expected performance of the policy based on market conditions when you purchased it, and how has it actually performed?
- Premium amount and duration:
How much will you have to pay – and for how long – in order to keep your policy in force as expected?
- Future performance:
How might your policy perform going forward with current market conditions as a more accurate starting point?
- Past intentions vs. current needs:
What was the purpose of the insurance when you purchased it? Are the same factors still relevant in your planning?
- Medical underwriting:
Was your policy priced at a premium based on medical conditions at the time of purchase? Has your health improved?
- Beneficiary designations:
Were the beneficiaries accurately noted on the original policy? Are they consistent with choices you would make today?
- Ownership structure:
Was your ownership structure accurately set up based on estate tax funding or other planning intentions?
- Today’s pricing:
What is available in the marketplace today that might be less expensive and carry better guarantees? Could you purchase a better new policy without changing your cash outlay?
In today’s market conditions, it is highly possible that a policy can collapse even if you fulfill your commitment of premium payments. In addition, just like in many industries, the pricing of new policies has improved dramatically over the years. You may be able to purchase a better new policy without changing your cash outlay. As always, awareness increases the likelihood of staying on track.
As always, please feel free to call with questions about this or any other planning related topic.