If you purchased your life insurance coverage years ago, chances are the circumstances in your life have changed substantially. Buying life insurance should never be a one-and-done event because “life happens” and change is constant.
That’s why it’s important for your insurance professional to sit down with you on a periodic basis to conduct a review to determine whether the policy you purchased is still relevant to your income protection needs. If not, you might be better off with a life settlement.
Be proactive. Don’t wait for the insurance agent to contact you to set up the policy review or it may not happen. Tax season is often a convenient time for policy owners to schedule a review with their financial advisor.
The Case of the Missing Agent
We recently learned about the experience of one individual who had purchased a $200,000 universal life policy from an insurance agent who had been referred to her by a neighbor. After purchasing the coverage, several years went by, and the policy owner’s circumstances had changed substantially. Her financial advisor, a Certified Financial Planner (CFP), recommended she consider canceling the coverage because the premium payments were draining her cash assets. In his opinion, she really didn’t need the level of coverage that had been sold to her.
However, the CFP, who was not insurance licensed, recommended she go back to the agent who sold her the policy to request a policy review. The CFP also recommended that she discuss the possibility of a life settlement with her insurance agent. She attempted to contact the agent but learned that he had retired immediately after selling her the policy five years earlier.
As it turns out, the insurance company had never assigned a new agent to her account, and she was simply forgotten about, except for receiving premium statements. As a result of this negative experience with the “missing agent,” the insured lost trust in the insurance company. Based on the CFP’s recommendations, she decided to cancel the coverage and purchasing a smaller policy from a different carrier.
Unfortunately, she was not a candidate for a life settlement because she did not have the qualification factors due to her young age and health status. In her words “years of expensive premium payments went down to drain.”
Agent Best Practices
Annual policy reviews are a must and are considered among the “best practices” for insurance advisors. This is the opportunity for your agent to reassure you that your policy is an appropriate long-term solution to meet your estate planning needs. Also, sitting down with your insurance agent once a year for an annual review helps build trust and confidence between you and the insurance advisor.
Below is a set of 20 questions and discussion items that you’ll want to review on an annual basis with your insurance advisor:
- The policy’s terms and conditions and an in-force illustration that shows how the policy has performed and how it is projected to perform in the future.
- Are the premiums being paid as expected?
- What are the premium costs, the rate of return and the amount of interest credited?
- Why did you purchase the policy? What were your objectives? Are they still relevant?
- Has your income changed?
- Have the beneficiaries changed due to the family’s situation changing?
- Any major changes to your health or your family’s health?
- Should you convert to a hybrid policy with long-term care coverage?
- Have you received an inheritance that may require adjustments in insurance coverage?
- Have any beneficiaries preceded you in death?
- Has there been a divorce or change in marital status?
- Is the amount of coverage relevant to your changing needs?
- Would reduced coverage for final expenses be more appropriate than income protection coverage?
- Are premium payments creating a financial burden and preventing you from saving for your retirement years?
- Has the insurance carrier raised the monthly cost of insurance which jeopardizes your financial capacity to maintain the coverage to maturity?
- Would a new policy with a reduced death benefit fit within your budget?
- Is the policy at risk of lapsing?
- What’s the cash value of the policy?
- Should you consider a life settlement if you no longer need the coverage?
- Would a combination of a life settlement and a retained death benefit be more appropriate for your current needs?
If you believe you are over-insured and feel burdened by expensive premium payments for life insurance you may no longer need, we recommend you discuss a life settlement during your next policy review with your insurance professional. You owe it to yourself to explore whether a life settlement is the solution you need to achieve your objectives.
Please contact Trust Life Settlements at 800-216-2513 if you have questions about this article or would like us to provide you with a no-obligation pricing analysis on the value of your policy. If you decide to pursue a life settlement, we’ll work with our strategic brokerage partners to shop your policy in the secondary market to obtain the highest possible cash settlement.