When a newly insured person picks up their life insurance policy, the strong sense of completion and relief usually starts to kick in, and the idea of doing an annual policy review is the last thing on their mind. But did you know that over $1 billion in life insurance benefits alone have not reached their recipients according to the ABA Journal? Not only that, but life changes can make doing a review a vital check to ensure adequate protection. Combine these with the fact that many insured people have misunderstood or forgot how their existing coverage is supposed to work makes doing a regular review the best way to ensure that coverage is understood, adequate protection is in place, and that the money reaches any beneficiary in a timely fashion. Below are some key areas to cover when doing your policy review:
- What type of plan is in place & how much coverage is in force? I can’t tell you how many times I have sat down with an insured person to review an old policy only to find out they were misunderstanding about their plan design. Maybe the they thought they had full life coverage and it was merely accidental, or that they thought it was it was permanent coverage, but come to find out it is term or some kind of hybrid product. The first part of reviewing your plan is to identify the type of coverage that you have. This is usually located within the first few pages of the policy. The second step is to find out how much coverage is in force. Unfortunately this may require a call to the carrier if you have a permanent life plan due to cash values.
- Is the policy designed to build cash, and if so how much is currently in the plan? People with cash value life insurance often have not seen an agent or called their carrier in years, but they did remember seeing a projection of future values when they picked up a plan, known as an “illustration”. Down the road it is vital to find out how those cash values are performing, especially if those future values are intended to pay premiums or be used for retirement, long-term care, or other planned expenses. At the time of this writing I am in the midst of helping a new client get out of their existing cash-value permanent life insurance plan sold many years ago by another agent that is simply not performing, and into something more secure. Had we not taken the time to review cash values, called the carrier and examine projections she could have lost coverage completely along with the $50,000+ paid into the plan. When reviewing permanent life plans it is imperative to note that these are usually drawn up with a “guaranteed” and “non-guaranteed” listing of cash values, review both with an agent you trust. Also remember that many products have something called a “surrender schedule” which can essentially penalize an insured’s cash value if a policy owner were to cancel a plan during years.
- What has changed in the life of the insured? Because we are all getting older, it is good to think as far down the road as possible when picking up a plan since normally it is less pricy now than in the future, but unforeseen events make doing a review a good idea to ensure adequate coverage. Has there been a change in a mortgage, income, lifestyle, marriage/family, business, or assets? These questions can help determine if the coverage that was once sufficient years ago are still enough to protect what is happening today & into the future.
- Who are the recorded beneficiaries? When doing a policy review, make sure the beneficiaries are still the same people desired to receive funds. Also, find out if the beneficiaries know they are beneficiaries. If it is not appropriate that that they know, then is someone beyond the insured aware of the policy? Oftentimes people pick up a policy, forget about it, and then not let anyone know it exists, putting a payout in jeopardy since a claim would need to be filed for a proceed to be paid. So review beneficiaries and if okay with it, give the beneficiaries the name/phone of the carrier and agent or someone that is trusted.
The bottom line: be proactive and get your life insurance reviewed! It is better to take the time on a regular basis than be surprised or disappointed in the future!