Keep Your Life Insurance On Track

Ask yourself these questions every one to two years.


Life insurance seems like the ultimate buy-and-hold investment…

Whether you have a term or permanent policy, it doesn’t seem as high maintenance as say, shares of a new tech startup. But that’s only partly correct. No element of your financial life is truly “set it and forget it” — and that includes your life insurance policy.

A check-in on your insurance policies could help to identify potential problems, as well as opportunities to take advantage of, before a situation becomes irreversible.

Too little coverage and listing the wrong beneficiaries may be the insurance issues that immediately come to mind. 

They’re important to check, but a complete insurance review could reveal a permanent policy’s instability, or even uncover a way to reduce premiums while increasing your legacy benefit. 

A good practice for policyholders would be to ask these questions at least every couple of years to keep their insurance on sound footing:

 

1. Do you have the right type of policy?

Typically, a term life insurance policy is best-suited to answering temporary needs, such as coverage that would help survivors pay off a mortgage or fund children’s higher education.

After those conditions change, however, it may make sense to consider a permanent policy with cash value to answer much longer-term needs, such as your estate’s taxes and requirement for liquidity.

 

 

 

2. Is your policy at risk for lapsing?

This may seem like an odd question at first; if you’re paying your policy’s premiums on time, it won’t lapse, right?

Not quite. A lot of older permanent policies were projected to be self-sustaining:

  • After a certain period of building up value based on their underlying investments, purchasers wouldn’t need to pay a premium
  • But because interest rates have been so low for so long, the investments underlying a policy’s cash value may not be performing as intended
  • Ultimately, the policy might not be able to fund itself, and the premiums could increase — or the policy could lapse.

This is just one example of how a permanent policy’s underlying cash value performance could affect its ability to be there when you need it. It’s a reminder of why you can’t go on autopilot when it comes to your life insurance.

 

 

3. Is your coverage competitively priced?

It’s always smart to consider ways your coverage could be more cost-effective.

For a policy that is underperforming — and therefore requires additional premiums — an individual could take the cash value and use it to fund the purchase of a new policy (perhaps one that’s already fully paid).

And the updated mortality tables that are used in current policies could mean that a new policy with the same coverage as the old policy costs less than the original policy — even when as the insured is now older.

Because interest rates have been so low for so long, the investments underlying a policy’s cash value may not be performing as originally illustrated by the life insurance company.

 

 

4. Have your needs or lifestyle changed?

Another way to make your life insurance more efficient is to make sure it fits your