8 SIGNS IT’S TIME TO REVIEW YOUR CURRENT LIFE INSURANCE

December 30, 2016 at 1:35 pm Leave a comment

We don’t expect you to continually review your life insurance policy for fun; it should indeed be something you don’t worry about all too frequently. To help you manage and adjust your life insurance without hours of research, here are eight signs it’s time to take a closer look at your current policy.

 

1. Your Cash Accumulation Account is Dwindling

Many permanent life insurance policies come with the option of adding a cash accumulation account. This account serves as an investment, one that can provide great financial flexibility and yield attractive interest rates.

What many people don’t understand, though, is that the money in a non-guaranteed universal life policy doesn’t grow automatically. Like any investment, a cash accumulation account comes with market risk. And in a lifetime policy, your cost of insurance increases each year as you age. As a result, if you’re not keeping track of your premium, interest rates and the balance in that account, it can dry up unexpectedly.

Possibly the worst horror story we’ve heard is that of an older man who had bought a policy through an agent many years back. His cash accumulation hit zero before he became aware of what was happening. To retain his life insurance, he was required to pay the cost of his policy, plus a mortality risk charge, plus his base premium—all out of pocket and with no warning. To make matters worse, he had a major health issue and simply could no longer qualify for new life insurance. Had he reviewed his policy and taken action earlier, we may have had an opportunity to shop around and secure a more workable policy prior to his cash depleting and health deteriorating.

2. Your Policy Expires Soon

With any life insurance, you want to stay well ahead of your term’s expiration date. Otherwise, you could see your rates skyrocket, both for renewing your policy and finding a new one. There’s also a six-month rule that allows providers to round your age up to your nearest birthday, another reason we recommend reviewing your options a year out from when your policy is set to switch.

3. Your Rate Has Increased

As seen in the first two points, don’t expect to receive a warning when a price increase is approaching, whether for your personally owned insurance or an employer group plan. Group insurance, for example, will rise in cost everyone to five years. As the cost of health insurance increases, employers are choosing to stop subsidizing life insurance.

In some cases, a rate hike may be unavoidable. However, it’s best to be pro-active and shop the market for your current age, health and insurance needs. Some top life insurance companies have much more competitive rates than home and auto insurance specialists.

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4. You’re Taking a Pension

If your employer offers a pension and you’re preparing to retire, life insurance should be on your radar for two reasons:

First, there’s a good chance you’re among the many Canadians who have employer-provided group life insurance (and, as the stats from an earlier show, don’t really know how it works). Most employer-sponsored group life insurance can’t be converted to an individual plan. When it is convertible, the rates will typically increase in a short time, similar to COBRA health coverage.

Second, life insurance is often viable, and in many cases, less costly replacement to a spousal pension benefit. This strategy referred to as “pension maximization”, allows you to accept your full pension and protect your spouse with life insurance rather than taking the reduced fixed benefit you would see by including them to your pension.

5. You Have a New Mortgage (Or Have Paid Off an Old One)

Let’s say you have a life insurance policy with a death benefit of $100,000. If you buy a new home with a mortgage of $500,000 total, you’ll want to update your policy to ensure your home will be left to your family free and clear of debt in the event of your death.

Likewise, if you have just paid off your mortgage, the life insurance you previously bought to cover that mortgage can become unnecessary. You’ll want to consider all of your investments and assets before downgrading, but you’ll likely be able to reduce your benefit and cost of life insurance.

6. You Have a New Addition to the Family

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Whether you’re having your first child, third or sixth, a new addition to the family should trigger a review (and usually a revamp) of your life insurance. Most people will add enough life insurance so that if they died tomorrow, there would be funds to provide for that child through their college years. It’s usually not necessary to start over with entirely new life insurance. Your agent should compare the cost of adding a new policy to the cost/benefits of combining all of your policies.

Stay-at-home parents and non-working spouses should align their coverage with these life changes, as well. If they were to pass away with inadequate coverage, the financial burden can be the same as if the working spouse had passed away. Should my wife die, for example, she has enough life insurance where I could afford to stay home with my children until they reach high school age?

7. A Change in Your Health

A small or short-term health situation will often trigger “I may not live forever” realizations. Some conditions make you unable to qualify for new life insurance for a period of months or years. A licensed independent life insurance agent (not your home and auto guy) will help assess your options.

Most term life insurance carries a conversion option, allowing you “convert” all or a portion of your current life insurance to lifetime coverage. You’re not required to reprove your health, making this one of the most valuable features of low-cost term life insurance. Check with your insurance carrier or your agent to determine your age deadline; it’s generally between 60 and 70.

8. You Don’t Really Understand Your Policy

By any means, having a life insurance policy that you don’t understand can be as dangerous as not having life insurance at all. An independent insurance agent can help you review, understand, evaluate and, if necessary, replace your current life insurance policy.

For more info contact Bob at ottawabroker.com

1-800-503-6140 ext 223

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