Why is an Annual Review Important?
Under the Microscope: The importance of examining your life insurance annually
Key Questions: Have you reviewed your life insurance? Is your policy performing up to expectations?
Too often, I see insurance policies that have been in place for many years that the insured has not reviewed.
There are “moving” parts to some types of life insurance policies that need checking to make sure they are performing according to expectations.
- Example: Universal Life – This is a flexible premium solution. Most people pay the same premium for years. The policy mortality and policy expense charges are taken from the premium paid then applies an interest rate to any premium balance. The mortality and expense charges change as you get older. The interest rate changes over time. Therefore, it is smart to get the carrier to provide an illustration that shows projected future values. You certainly do not want to get a notice from the carrier that your coverage will lapse unless you pay a much higher premium! A review annually or at least every two years helps you be aware of any changes and if any premium adjustments are needed not to avoid a problem in the future.
- Example: Variable Life – This works similarly to Universal Life, except the insured can put the premium balance (after mortality and expense charges) into “separate accounts.” These are mutual fund type accounts. With market returns being volatile, it is smart to review these policies annually.
- Example: Term Life Insurance – Term Life Insurance is for a “term” of time. Term is designed to end at a certain date. You will want to know that date. Do not let it sneak up on you.
- Example: Whole Life Insurance – This is usually a fixed premium and covers your “whole life.” Some policies will even pay for themselves at some point. The death benefit may increase over time and it builds a cash value that can be used while you are living. It is important to make sure your contract and carrier is providing an efficient policy for your needs.
All types of life insurance should be reviewed to make sure the coverage you have is performing and meeting your needs. Life insurance is part of a solid financial foundation for you and those you love.
The Findings:Looking at the realistic statistics of life insurance
Genworth did a study regarding life insurance and found surprising results:
- 52 million American adults with household incomes between $50,000-$250,000 do not have life insurance.
- 69% of single adults are uninsured.
- 66% of single women with an income of $250,000 or more per year are uninsured.
- Of those who do own life insurance, 40% recognize they needed more because they believe they do not have enough to meet their families’ long term needs.
“Events” in life tend to trigger people to think about getting life insurance. The order of importance of these events differed by gender:
|1. Birth of a Child||1. Marriage|
|2. Job Changes||2. Reached Certain Age|
|3. Marriage||3. Job Changes|
|4. Reached Certain Age||4. Birth of a Child|
- 60% of surveyed respondents said they
- A. Want to meet with a financial advisor at least once per year.
- B. Want their financial advisor to discuss life insurance.
- One third purchased their policies over 10 years ago and would like annual reviews to make sure the type and amount of coverage is appropriate for life’s changes and their goals.
- 88% indicated they wanted an actual needs analysis rather than the old “rule of thumb” as to the amount and type of coverage for their specific situation.
Ask Beneficiaries: The Real Experts
In my own experience over the past 27 years, the first question every beneficiary asks is, “How much is it?”
They need money to buy time, pay bills, protect their lifestyle, keep the business open, pay for college, have peace of mind, and the list goes on…
Life insurance has many, many purposes. It is not a luxury, but a vital part of the foundation of financial planning.