One difficult lesson the pandemic has taught us is the prudence of life insurance policy review. Adding to the angst about the virus itself, the media has helped make mortality front of mind for many of us and created understandable concerns about insurability and protection needs. Not only are people working from home, but they are working on their homes, including going through closets and cabinets and putting a focus on getting their affairs in order. Life insurance is part of this process and has become of increased importance for some people.
On top of that, there is a lot of change still in the marketplace, as insurance carriers are repricing their products according to current conditions and many are using expedited underwriting, with no paramed exam, for certain ages and amounts. The good news is the process can be virtual from start to finish, which allows financial professionals to connect with and help you during this challenging environment.
Three main reasons for a policy review
1. Needs may have changed – your financial goals and objectives change over time. Financial professionals will assess the current needs when evaluating the policy and provide alternatives that may be more appropriate for your current situation.
2. Improved mortality – People are living longer and mortality costs have come down over time. Carriers had to reprice their products in 2009 and 2019 to reflect mortality experience. Depending on when you purchased a policy, you could be spending more than you need to for the coverage amount.
3. Economic changes – Market returns and long-term interest rates dictate how a cash value policy is funded when initially purchased. In addition, the actual returns experienced determine how the policy actually performs. Sometimes, the discrepancy between the assumed returns and actual returns can materially affect the cash values, premiums and death benefit. Getting current, in-force ledgers periodically helps you keep the policy on track to be there when needed.
Possible outcomes
1. Same death benefit for less premium or eliminate the premiums.
2. More death benefit or cash value for the same premium.
3. Enhanced benefits with stronger guarantees or adding a long term care component.
4. Save policy from lapsing with a better priced product.
5. Confidence – affirm the policy is meeting your current financial and risk management needs and there is nothing you need to do.
Incorporating policy reviews as a part of your overall financial planning practice and a permanent agenda item for your annual meetings with your advisor can add value in multiple ways.