Life insurance is an important financial product that provides protection for your loved ones in the event of your death. It is essential to regularly review your life insurance policy to ensure that your policy is still aligned with your current wishes and financial goals.
When you conduct a review of your life insurance policy, there are five areas that you can review with a licensed life insurance professional.
1. Your Beneficiaries
One reason to review your beneficiaries is that life circumstances can change. You may get married, divorced, or have children, which can all impact who you want to receive the benefits of your life insurance policy. If you don’t review your beneficiaries, your policy may pay out to an ex-spouse or an estranged relative, rather than the person you would have chosen.
Another reason to review your beneficiaries is to ensure that your policy accurately reflects your financial goals. For example, if you have a child who is now financially independent, you may no longer want them to be the beneficiary of your life insurance policy. On the other hand, if you have a child who is still financially dependent on you, you may want to increase the amount of coverage on your policy to provide for their needs.
It is not uncommon that a policyholder may have failed to designate a beneficiary in the first place. If you have not designated a beneficiary, or if your designated beneficiary has passed away, your life insurance policy may be distributed according to state laws, going through probate and potentially making the death benefit available to your creditors – which may not align with your wishes.
2. Coverage
It is essential to regularly review the face value or death benefit on your life insurance policy to ensure that it is sufficient to meet your current needs.
One reason to review the coverage amount on your life insurance policy is that your financial needs and responsibilities can change over time. For example, you may have had a child or purchased a home since you last reviewed your policy, which can increase your financial responsibilities and the amount of coverage you need. On the other hand, you may have paid off a mortgage or your children may have become financially independent, which can decrease the amount of coverage you need.
Another reason to review the coverage amount on your life insurance policy is to ensure that it is consistent with your financial goals. If you have a goal to leave a financial legacy for your loved ones or to provide for their long-term financial security, you may need a higher coverage amount. Alternatively, if your financial goals have changed and you no longer have the same level of financial responsibilities, you may be able to reduce the coverage amount on your policy.
It is also important to review the coverage amount on your life insurance policy to ensure that it is still aligned with your overall financial plan. Your life insurance coverage should be considered in the context of your other financial assets and liabilities, such as your retirement savings, debt, and other expenses.
Finally, consider if your life insurance policy covers terminal illness and complete disability or can provide what is referred to as double indemnity – double the face value of the insurance should an accidental death occur. At different times in our lives, these extra benefits can make a considerable difference in our lives and the lives of our survivors should the unexpected take place.
3. Conversion Opportunities
If you currently have term life insurance providing coverage for a specific period of time, such as 10, 20, or 30 years, you may upon review of your financial situation find it advantageous to upgrade to whole or permanent life insurance. Whole life insurance is a type of life insurance that provides coverage for the entirety of an individual’s life.
Many insurance companies offer term policy holders the option to upgrade to whole life insurance without having to go through additional underwriting. There are several reasons why someone may want to consider upgrading from term to permanent life insurance.
One reason to upgrade from term to permanent life insurance is to ensure that you have lifelong coverage. With term life insurance, your coverage will expire at the end of the term, regardless of whether you are still in good health. If you outlive your term life insurance policy, you may not be able to qualify for a new policy due to your age or health status. Permanent life insurance, on the other hand, provides coverage for the entirety of your life, as long as you continue to pay the premiums.
Another reason to upgrade from term to permanent life insurance is to take advantage of the additional benefits that permanent or whole life insurance provides. Whole life insurance policies offer a cash value component, which is a savings account that accumulates tax-deferred over time. You can use the cash value in your policy for a variety of purposes, such as supplementing your retirement income, paying for unexpected expenses, or leaving a financial legacy for your loved ones. There are even universal life insurance that are whole life insurance that offer a flexible premium. Many insurance companies offer universal policies with either a fixed rate or a rate of growth that is pegged to a stock index such as the S&P 500. The advantage of the indexed universal life insurance policies is that insurance companies generally guarantee that you will not lose your initial cash value even if the index falls below zero.
Before deciding to upgrade from term to permanent life insurance, it is important to carefully consider your financial goals and needs. Term life insurance may be a more affordable option for those who only need coverage for a specific period of time, such as to cover a mortgage or other financial obligations. However, for those who want lifelong coverage, the additional benefits of permanent life insurance, and the ability to lock in a lower premium rate, upgrading to a permanent life insurance policy may be a good option.
“One reason to review the coverage amount on your life insurance policy is that your financial needs and responsibilities can change over time.”
4. Distribution
There are several different ways that an insurance policy can structure the distribution of its death benefit, including a lump sum payment, an installment payment, a combination of lump sum and installment payments, and a trust. The best payment structure will depend on the needs and circumstances of the beneficiary which can change over time. Therefore an important part of the review of your life insurance policy includes a review of how the death benefit would be distributed in the event of your death.
One way that an insurance policy can structure the distribution of its death benefit is through a lump sum payment. With a lump sum payment, the entire death benefit is paid out to the beneficiary in a single payment. This type of payment can be useful for beneficiaries who need to pay off debts or expenses, or who want to have immediate access to the funds.
Another way that an insurance policy can structure the distribution of its death benefit is through a installment payment. With an installment payment, the death benefit is paid out to the beneficiary in installments, rather than as a single payment. This type of payment can be useful for beneficiaries who need to receive a steady stream of income, or who want to spread the funds out over a longer period of time.
A third way that an insurance policy can structure the distribution of its death benefit is through a combination of lump sum and installment payments. With this type of payment structure, the beneficiary receives a portion of the death benefit as a lump sum payment, and the remaining balance is paid out in installments. This type of payment can be useful for beneficiaries who need to pay off debts or expenses, but also want to receive a steady stream of income.
Insurance policies can also structure the distribution of their death benefit through a trust. With a trust, the death benefit is paid into a trust fund, which is managed by a trustee. The trustee can then distribute the funds to the beneficiary according to the terms of the trust. This type of payment can be useful for beneficiaries who are minors, or who are unable to manage the funds on their own.
5. Alternatives
There are many alternatives in the market to the policy you currently have and you might benefit from replacing a life insurance policy with one from another insurance company.
One reason to replace a life insurance policy with one from another insurance company is to get a lower premium rate. Insurance companies often offer different premium rates for life insurance policies and switching to a company with even slightly lower rates can save you money over the long term. It is important to compare the premium rates of multiple insurance companies before making a decision, as the difference in rates can be significant.
Another reason to replace a life insurance policy with one from another insurance company is to get better coverage. Insurance companies may offer different policy options and riders that can provide additional coverage or benefits. For example, one insurance company may offer a policy with a higher death benefit or a longer term, while another company may offer a policy with a cash value component or a rider for accidental death. Replacing your policy with one from another insurance company can give you the opportunity to get better coverage that meets your specific needs.
A third reason to replace a life insurance policy with one from another insurance company is to improve the claims process. Insurance companies can differ in their claims processes and how they handle claims. If you have had a negative experience with the claims process of your current insurance company, or if you have heard negative things about their claims process from others, you may want to consider replacing your policy with one from another insurance company.
Before replacing a life insurance policy with one from another insurance company, it is important to carefully consider your financial goals and needs, and to compare the policy options and premium rates of multiple insurance companies. It may also be beneficial to speak with a financial advisor to help you make an informed decision.
To review your life insurance policy, you will need to contact a licensed life insurance professional and request a policy review. This process typically involves discussing your current situation and future financial goals to determine the appropriate changes that may need to be made to your policy or policies.
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