What did you do with your life insurance policy when you received it? If you’re like most people, you probably gave it a quick review and filed it with your other valuable documents. Also, if you’re like most people, you probably haven’t looked at it for quite some time.
The good news is that if you’ve been paying your premiums on time, the policy has probably not had any material changes since you purchased it. While this is mostly good news, if you have had significant changes in your life, your policy probably hasn’t kept up with them.
Most insurance professionals recommend a life insurance policy review on an annual or bi-annual basis to see if any of the following changes you made would impact your policy:
- Address or other contact information changes: While this is a simple change, you would be surprised by how many people don’t notify the insurance company about this one. We get dozens of calls annually from our clients, worried that they haven’t received their bill from their insurance company. Invariably, we found out that the client moved and failed to inform us (who would have assisted with the change of information) or the insurance company. Unfortunately, we have seen far too many clients’ policies lapse because they failed to notify the insurance company about the change.
- Change of bank account: This one applies if you pay your premium by bank draft. If you don’t notify the insurance company of this change and provide them with new account information, they won’t be able to debit your account. If they can’t contact you before the end of your grace period, your policy will lapse.
- Change of Beneficiaries: This would include changing, adding, and removing beneficiaries. You would most probably add new children to the policy and a new spouse or partner. Conversely, if you got a divorce or separated from your spouse or partner, you might want to remove this person as a beneficiary (be careful to follow any court order to maintain the beneficiary status of an ex-spouse for a specified period of time if so ordered).
- Change of Policy Ownership: In many cases, the owner and the insured person are not the same as when a trust is the owner of the policy. If you establish a trust after you purchase your policy, you could consider transferring ownership of the policy to trust. In many cases, you would also name the trust as the beneficiary.
The following life changes should trigger a need for a policy review (some of these also fall under Administrative Changes):
- Birth of Children: If your policy doesn’t account for all those who are dependent on your income, you might need to increase the amount of your death benefit. This typically requires either replacing your current policy with a new one with a higher benefit or adding to your current policy with a new one. The choice is usually dependent on which option is the most economical.
- Change in Income: If your income increased significantly, you would want to make sure the death benefit of your policy is great enough to replace your income for a specified period of time in the event of your death. Conversely, if you had a drop in income and don’t expect it to recover, you might want to look at decreasing your coverage. Increases in benefit can be done as explained above but decreases can typically occur within your current policy, only requiring completion of a short form.
- Health Improvements: If you quit smoking cigarettes (or using other nicotine products) and you’ve been nicotine-free for at least a year, your smoker rates can usually be changed to non-smoker rates, resulting in much lower premiums. If you’ve lost weight (and kept it off for at least a year), you might also qualify for lower premiums. Improvements in your cholesterol readings and/or blood pressure can also lead to a better health class and lower rates. In most cases where health is improved, the insurance company will make the changes to your current policy. In some cases, a new policy might be the way to go if that is more beneficial economically.
- Health Deterioration: If your health declines, the insurance company cannot raise the premiums of your current policy. However, this would be a good time to look at the policy’s Conversion feature, which allows you to convert your term policy to a permanent policy (universal life or whole life) without changing your original health class. If you are approaching the end of your term policy and your health has deteriorated, this would be a good time to take a look at converting your policy.
Other Life Events that Should be Considered
Fortunately, your life insurance coverage can change as your life changes. Knowing how life events can impact your financial risk is a critical reason to do business with an independent agent who will contact you regularly to make certain your life insurance coverage is sufficient to mitigate your risks.
Life events that will likely impact you financially and thus trigger a coverage review include:
Certainly, none of us live in a vacuum. Without out a doubt, life events will affect all of us, and for that reason, every adult who owns life insurance should consider having that policy reviewed to determine if it is sufficient to mitigate all financial risks during your lifetime.
If your agent is unable to change your current policy or policies to meet your needs, it may be time to consider another policy in addition to what you are currently carrying.
On the other hand, if your overall financial risk has been significantly reduced, it may be time to reduce the amount of coverage you have.