Is Your Life Insurance Policy Still Doing Its Job?

September is Life Insurance Awareness Month, making this a good time to ask an important question:

When was the last time you reviewed your life insurance policy?

Many people purchased life insurance 15, 20, or even 30 years ago. At the time, that policy probably had a very specific job.

Maybe it was intended to replace your paycheck if something happened to you. Maybe it was there to protect the mortgage or make sure your young children were financially taken care of.

But fast-forward 20 years and life may look very different. Your children may be grown, your mortgage may be almost paid off, and retirement may be right around the corner.

The question isn’t simply, “How old is my life insurance policy?”

The better question is, “What financial problem would this policy solve for my family today?”

Your Policy’s Purpose May Have Changed

Your need for life insurance doesn’t necessarily disappear when you retire. Its job may simply change.

The death benefit may now be intended to provide income for a surviving spouse or pay off remaining debt. The policy might be part of your estate plan, provide an inheritance, or support a charity that is important to you.

You may also review everything and realize that you no longer need as much coverage.

The point is that you won’t know until you actually look at it.

Start With the Basics

Begin by determining what type of policy you own.

Is it term insurance, whole life, or universal life?

Then review the death benefit, the premium you’re currently paying, and your beneficiaries.

Don’t rely on what you remember purchasing years ago. Look at what the policy actually says today, what it pays, what it costs, what is guaranteed, and what could potentially change.

If You Have Term Insurance

One of the most important things to review is when the level-premium period ends.

Some people reach the end of a term policy and suddenly realize that the cost to keep it is going to change dramatically.

Don’t wait until your policy is about to expire. Find out when the term ends, what happens to the premium afterward, and whether you still have a conversion option available.

If You Have Permanent Life Insurance

Permanent life insurance requires a little more review.

You’ll want to understand the policy’s cash value, future premiums, any loans or withdrawals you’ve taken, and how the policy is projected to perform going forward.

Permanent doesn’t mean “set it and forget it.”

If you’ve borrowed from the policy or changed how much you’re paying into it, that can affect the death benefit, cash value, and potentially whether the policy remains in force.

That is why requesting a current in-force illustration can be so valuable. It provides a clearer picture of where the policy stands today instead of relying on projections you received 20 years ago.

Review Your Beneficiaries

Your beneficiaries are another important part of the review.

Maybe you named them when your children were young. Since then, you may have experienced a marriage, divorce, birth, death, or change to your estate plan.

Your beneficiary designation provides instructions to the insurance company about where the death benefit should go. Make sure both your primary and contingent beneficiaries still reflect what you want today.

Don’t Cancel a Policy Without Understanding the Consequences

If you decide that you may no longer need the policy, don’t assume that you should simply cancel it.

There can be tax consequences to surrendering certain policies. Replacing an older policy may also mean giving up guarantees, riders, favorable pricing, or other features that you may not be able to get back.

Before you surrender, replace, borrow against, or make a major change to an existing policy, understand exactly what you’re giving up and what the potential financial and tax consequences may be.

Give Your Life Insurance a Checkup

This Life Insurance Awareness Month, pull out your policy and ask yourself:

• What is this policy supposed to accomplish today?

• Does my family still need the death benefit?

• Can my retirement cash flow comfortably support the premiums?

• Are my primary and contingent beneficiaries, correct?

• Is this policy still doing the job I need it to do?

An older policy isn’t automatically a bad policy, and it isn’t automatically one you should keep.

The goal is simply to make sure your life insurance still fits the financial life you have today, not the one you had 20 years ago.

If you’d like help reviewing how your life insurance fits into your retirement and estate plan, you can schedule a time by visiting caserta-dejongh.com or by giving us a call.

9088856DH_AUG28