What would happen to your family if you died? That may not be an enjoyable thought to dwell on, but it’s one that is critical to your family’s well being. According to a study conducted by Life Happens and LIMRA, 1 in 3 households would not be about to cover their living expenses if the primary income earner passed away. (1) Despite those dismal numbers, more than 4 in 10 people don’t own a life insurance policy in any amount and 40% of those who do say they are under-insured. (2)
While not exactly the most exciting of tasks, it is important for your financial security to review your life insurance policy. Here are five reasons why you may benefit from a life insurance review.
1. You Could Outlive Your Policy
What would happen if you lived longer than your life insurance policy? Poor performance, loans, incorrect ownership, or beneficiary choices could lead to a mess for your loved ones when your policy is needed most. There’s a chance your current policy may have an expiration date that you aren’t aware of. Many policies are set to endow at age 95 or 100, and while that may seem like a long time to live, in the past 30 years alone, the U.S. centenarian population has grown 65.8%. (3) And if you have term life insurance, remember that it is only valid for a specific length of time. If you pass away while covered by term insurance, you will receive a 100% payout, but in reality, less than 1% of all term life policies have ever paid a benefit. (4)
If you outlive your policy, the repercussions could be disastrous. Make sure you understand and plan for this situation, especially if you purchased your life insurance policy at a young age.
2. You Could Run Into Tax Problems
Life insurance is often thought of as being income tax-free at your death, but some policies are inadvertently set up to be taxable at death. If your policy was created this way, would that cause issues for your family? If it would, or if you aren’t sure if it would, an advisor may be able to help you rectify this problem and create a strategy to ensure your family isn’t caught off guard.
3. Your Policy Could Be Performing Better
How do you know if your life insurance policy is performing as expected? When you purchased the policy you were most likely provided a projection of values, but have you seen an updated estimate since then? How would it compare to what you were originally shown?
It’s possible that your policy is outperforming its original projection, but considering the direction of the economy over the past few years, it’s more likely that the policy has underperformed. If so, what might that mean for you and your plans for your loved ones?
Now may be a good time to update your projections and ensure they are on track. Most often, it’s easier to adjust a policy before it goes too far off course. Your advisor can help you evaluate how the policy has performed since you purchased it and how it is projected to perform in the future.
4. Your Policy May Be Outdated
Throughout the last few decades, life insurance has evolved into a more valuable and robust risk management tool. Today’s policies can cover more than just premature death. There are options to cover chronic illness and long-term care and they have the ability to direct policy cash values among multiple options — not just the insurer’s general account.
If it’s been a few years or decades since you first purchased your policy, you may need to add additional coverage, such as long-term care, with a rider, which can be more cost-effective than buying a separate policy.
Even if you don’t need to add features, you may still need to verify that your beneficiaries are up-to-date and check if you have the correct amount and type of coverage.
5. You Might Still Need Insurance
Contrary to popular belief, the need for life insurance may never disappear, regardless of how old you are, how many assets you have, and whether or not you have dependents. Even if you are retired, life insurance can replace the loss of any Social Security income and provide funds to cover debts, funeral expenses, and taxes.
Reviewing Your Policy
Life insurance can be confusing, and it is often difficult to know if your policy is doing what it’s supposed to do. Through an insurance update, we can help you examine your policies in-depth so that you can have increased confidence that your plans are on track. If you are concerned about your life insurance policy or would like to schedule a review, call us at (402) 932-2141 or email firstname.lastname@example.org.
Darrell Bryant, CFS®, CAS® is Omaha’s Retirement Strategist. As the founder of D. Bryant Retirement Strategies, he focuses on helping individuals and couples nearing retirement do so successfully. Along with more than 30 years of experience, he received the Certified Fund Specialist (CFS®) designation and a Certified Annuity Specialist (CAS®) designation from the Institute of Business & Finance. Passionate about helping as many people as possible in his community, he hosts Retirement Strategies Radio, heard Saturday mornings at 8 a.m. on 1110 KFAB. He has also written articles on financial planning that have been featured on Fortune.com, FoxBusiness.com, Money.com, and in the Midland Business Journal. To learn more, visit his blog, his website, or connect with him on LinkedIn.
(1) 2016 Insurance Barometer Study.