Life insurance check-up may save you money and heartache

By Stephen High

Once you have purchased life insurance, it is tempting to file your policies away and forget about them. But it is critically important that you review them on a regular basis, especially as the circumstances in your life change. An annual policy review could save you a lot of heartache down the road and could save you money on premiums.

The objective of a policy review is to ensure that your life insurance coverage is in alignment with your current financial needs. This review should be undertaken with respect to choices made within your will(s) and any trusts you have established.

As our lives change, our life insurance needs may change as well. Events such as the birth of a child, the death of a loved one, marriage, divorce or a significant change in income can influence how much financial protection you need or how you want your estate divided after your death. You will need to evaluate (or have a professional help you evaluate) your insurance needs in light of any such changes.

Chances are, your life has changed since you acquired your life insurance policies. You may no longer need life insurance, or you may need more coverage. On the other hand, you may have the wrong type of life insurance policy — one that no longer meets your specific needs. Assessing your current coverage involves reflection and review, starting with these questions:

• How would your family meet their financial needs if you or your spouse died?
• What immediate and ongoing expenses will your family incur if you are gone?
• Have you been married, divorced or become disabled?
• Have you added another member to your family?
• Has your net worth increased or decreased significantly?
• Is your retirement plan adequate to fund your future?
• Do you now have grandchildren whom you would like to provide for?
• Are your policy beneficiaries still appropriate?
• Are your policies owned appropriately?

The insurance industry has undergone dramatic changes in recent years. In addition, interest rates have plunged. If it has been a while since you last reviewed your policies, you could be missing out on essential information about the performance of your policies and possible gains resulting from more current, cost-effective coverage. A policy review is a critical component of a sound financial planning strategy.

Questions to ask include:

• Have there been changes in the rating of your insurance policies’ carriers?
• Are your policies performing as originally projected?
• Are your policies’ premiums scheduled for a significant jump?
• Are there newer insurance products that are more cost efficient or that offer better guarantees?
• Does term insurance coverage meet your needs?

One possible outcome to your review could be replacing your old policies with new policies. This change may be accomplished through a tax-free exchange. In many cases, newer policies have lower cost structures than policies issued as recently as three or four years ago. If the financial stability of a carrier changes, it may be advisable to switch to a more financially sound company.

You may qualify for a better health rating which could lower your premiums on your current policy or on a new policy. For example, if you were a smoker when you bought your life insurance policy or you were overweight and you have since stopped smoking or lost weight, it may be worthwhile to get quotes for new life insurance to see if you can qualify for lower premium rates.

In fact, you should review the coverages of your other insurance policies as well, including long-term care, disability, homeowners, auto and umbrella liability policies. Put it on your calendar, or make it a routine part of your annual financial checkup. To ensure maximum protection for you and your loved ones, it is vital that you keep your policies up to date.