Have you reviewed your life insurance policy lately? If not, you should. In fact, financial advisors recommend reviewing it once a year, regardless of whether you have term life or a whole life insurance policy. Why so often? Because life changes on a regular basis, and your life insurance policy should keep up with those changes. Otherwise you run the risk of creating several unwanted outcomes, including:
- Not having enough coverage
- Having more coverage than you need
- Paying too much for your coverage
- Not having the right kind of coverage for your financial goals
- Having the wrong insurance carrier for your type of coverage
Conducting annual policy reviews can help avoid these common mistakes. It will make sure your beneficiaries always have the coverage they need – without overpaying for the insurance. And if the time has come to find a different policy or carrier to better suit your needs, a policy review will let you know before it’s too late.
The Easy Way to Review Your Term or Whole Life Insurance Policy
Conducting an annual policy review doesn’t have to be a complex or difficult process. Asking five basic questions will clarify whether your policy needs updating or can remain as is.
1. What has changed since your last term insurance policy review?
It’s amazing how suddenly life’s circumstances can change. Whether planned or unexpected, these changes need to be addressed in your life insurance policy. For example:
- Have you gotten married or divorced?
- Have you become a parent or added another child to your family?
- Have you changed jobs or had a significant increase or decrease in your income?
- Did you purchase a home and take on the financial burden of a mortgage?
- Are you now supporting elderly parents who can no longer look after themselves?
- Are the kids getting ready to go off to college?
- Are you nearing retirement?
- Are you thinking about estate planning?
If you answered yes to even one of these questions, you probably should plan a get-together with your agent to discuss whether your current insurance policy still meets your needs. In you answered more than one affirmatively, run (don’t walk) to your agent’s office for a full policy review.
2. Has your lifestyle changed?
Lifestyle and health have a big impact on the cost of a universal and term life insurance policy. If recent lifestyle changes have led to an improvement in your health, your insurance carrier might allow you to benefit from them. Have you lost weight or quit smoking? Have you stopped engaging in risky activities such as skydiving or rock climbing? Have you stopped taking medications for depression, anxiety or some other type of mental illness? If so, contact your agent to discuss the possibility of lowering your premiums to reflect your new and improved health. Doing so could save a lot of money, especially with a whole life insurance policy, where the premiums tend to be higher
3. Do the named beneficiaries on your policy need updating?
Beneficiaries are one of the most important parts of a policy to review. The last thing you want is to die and leave the money to the wrong person or people. Some of the reasons for changing or adding new beneficiaries include:
- Marriage or divorce
- Death of a spouse or civil partner
- Birth of children and grandchildren
- Marriage of children
- Sale of a business
- Large inheritance or other unexpected financial windfall
- Changes to your estate plan
When reviewing this part of your policy, ask questions like: Who are the current named beneficiaries? Are they still the ones I want to receive the death benefit payment from my life insurance policy? If I add new beneficiaries, will I need to increase the amount of coverage? These are not easy decisions, so be sure to discuss them with your agent and with the beneficiaries.
4. Can I pay less for the same (or more) coverage?
Prices for whole life and term life insurance constantly fluctuate due to changes in actuarial tables and other circumstances. For example, the cost of buying life insurance has come down in recent years for a variety of reasons. As with any business, increased competition drives prices down. People are living longer. Advanced medical tests help insurers more accurately assess the risk of people dying within a certain time period. Advances in medical treatment are helping more people recover from cancer, diabetes and other debilitating diseases. Longer life spans usually translate into lower premiums.
5. Is your life insurance policy still the right one for this stage of your life?
Today’s insurance carriers are continually coming out with new features, options and types of insurance. For example, “index universal” life insurance is a relatively new type of permanent insurance that could potentially offer better investment returns than a traditional whole life insurance policy. New policies often tend to be more complex than existing ones, so always ask your agent for a full explanation of the pros and cons and whether or not a new policy fits your life insurance needs.