Why Your Insurance Policies Need Regular Check-Ups by Scott Montgomery
Just as annual medical check-ups help individuals maintain proper health, insurance plan reviews can provide invaluable benefits. By evaluating current insurance policies once a year or every two years, individuals can ensure that their policies keep up with their changing circumstances and may even result in re-rated and reduced premiums.
Too often, individuals purchase insurance policies, begin paying premiums and never think about those policies again. However, like life, insurance is dynamic. Major life events, such as marriage, divorce, births of children and employment status, can affect individuals’ insurance needs and the intended uses of policy benefits. The reasons for purchasing a policy today may not apply in the future, and benefits planned today may not be sufficient to meet one’s needs or the needs of his or her beneficiaries 10 years from now.
Permanent cash-value life insurance policies build cash value and subsequent death benefits during a policyholder’s lifetime. With a whole life policy, the premiums are guaranteed for the entirety of the policyholder’s life. Conversely, premiums associated with a non-guaranteed universal life policy can vary during the insured’s lifetime depending on the insurance company’s credited interest rate, mortality cost and company administrative expenses. As a result, an individual who purchased a universal life policy in the 1990’s, when interest rates were near 9 percent, is likely to see an increase in their premium payments during their lifetime. Similarly, premiums for universal life policies have the potential to decline over the course of one’s lifetime, as they may for individuals who purchased policies during the recent near-record interest rate lows. This, of course, assumes that interest rates will return to their historical average in the future.
With these facts in mind, individuals should continuously monitor their permanent life insurance policies to ensure that the premiums they pay will provide the death benefit for which they initially planned. Policy changes or other investment vehicles may need to be considered to meet the insured’s needs and/or supplement death benefits.
Meet Evolving Business Needs
Another situation in which policyholders benefit from regular reviews occurs when business owners rely on insurance policies as part of buy-sell agreements. In these succession plans, the business’s shareholders take out life insurance policies that enable them to use the proceeds upon the death of one shareholder to fund a buyout of the deceased ownership interests. Hopefully, businesses will grow long after succession plans are put into place. At that point, the features and benefits of the original policies may no longer apply in the future, and alternative funding vehicles may be considered, or the policies may need to be altered to meet new funding needs.
One of the most overlooked aspects of regular insurance check-ups is policyholders’ ability to potentially reduce their premium payments. Mortality costs and interest rates change, as do the offerings of insurance companies who try to stay competitive in a constantly evolving market. As a result, individuals may qualify for policy re-rates or, depending upon their health, they may be able to move into new policies with lower premiums. For example, a smoker or an individual with high blood pressure or another chronic health issue may secure an insurance policy and end up paying significantly high premiums. If the insured takes the steps to improve these health issues and sustain them over time, the insurance company may agree to a lower policy rate.
Policyholders also may be able to change their rates when their circumstances change. For example, individuals may take out a policy initially to ensure their survivors have ample money to remain in their homes and pay off the mortgage or to provide for a beneficiary to cover the costs associated with paying for a college education in the future. However, should they reach a point in their lifetimes that they no longer need these protective provisions, the policyholders may be able to reduce the benefit amounts and thereby reduce their premium payments.
Insurance is an asset that, like most investments, requires regular monitoring. Reviews of policies should not be limited to one’s life insurance. All insurance products, including disability and long-term care, can benefit from regular check-ups to ensure that policies adapt to changing needs and their rates remain competitive within the market and in line with policyholders evolving circumstances.
About the Author: Scott Montgomery, CLU, ChFC, is a registered representative with Raymond James Financial Services and a director with Provenance Wealth Advisors, an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants. For more information, call 305-379-8888 or email email@example.com.
Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Securities offered through Raymond James Financial Services, Inc., Members FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants.
Any opinions are those of Scott Montgomery and not necessarily those of RJFS or Raymond James. Insurance policies have exclusions and limitatio9ns. The cost and availability of insurance depends on factors such as age, health, and the type of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of insurance. Any guarantees are based on the claims paying ability of the insurance company.