Did somebody say, “Audit”? During tax season!!!? Don’t let the word scare you – remember that an audit of your own financial situation is highly recommended on a periodic basis. Most of the time, when we think of a financial review (or audit), we overlook one important component of our portfolio: our insurance policies.
You might wonder, “Why do I need to review my insurance policies? Aren’t they pretty much a set-it-and-forget-it type of thing?” The answer is: maybe, maybe not. If you purchased a term life insurance policy years ago, there is not much to wonder about its status. As long as you have continued paying the annual premium, it will remain in force for a pre-determined length of time. If you pass away during that time, it will pay out your death benefit to your loved ones.
However, there are many different types of life insurance policies – including Whole Life, Universal Life (UL), and Variable Universal Life (VUL) policies. If you are the proud owner of one of these policies, you may not only have life insurance protection, you may also have an investment.
Whole Life, UL, and VUL policies are made to be a bit more customizable with options based on your circumstances added in their provisions. These may include the option to accumulate cash value that you can use for future expenses. Cash value may also be applied to paying premiums for you or increasing your survivor payout amount. It’s important to review the underlying investments and the interest rates of these policies and track their performance over time. Interest rate assumptions may have been used to create policy projections when you first purchased the policy, but as we know, interest rates and investment performance can change over time, making the original assumptions out of date.
If you were counting on your policy’s investment performance and cash value to pay premiums for you, but the actual policy performance is not keeping pace with the original assumptions, you may have a policy that will lapse (terminate) before you anticipated. Just as you would review your investment accounts, you must regularly review your insurance policies to make sure they continue to meet your financial needs and goals. Ask your advisor to provide you with a Point-in-Time illustration so that you can adequately review the current situation of your insurance policy.
Other items to consider when reviewing your policies include:
1) Does the death benefit amount still cover the needs of your loved ones and/or business? Should you consider purchasing more insurance?
2) Have you updated your beneficiaries and contingent beneficiaries?
3) Is your policy owned by an individual or trust? If it’s owned by a trust, there may be special considerations for its administration.
4) What is the rating or strength of your policy’s insurance carrier?
5) Can your policy be exchanged for another policy that better fits your needs?
Professional financial advisors should always include insurance policies when they conduct a review of your situation, and they should follow a defined process to make sure your policies are on track with your financial plan. Take a look at the PSG Policy Audit Process and contact your advisor today to schedule a review of your insurance plan.