Revisit Your Life Insurance
Setting up life insurance can feel like a chore the first time. So why revisit it? Because doing so can save you money and help you protect your family.
Managing your life insurance policy is one of those important responsibilities that, while necessary, isn’t the most pleasant thing to think about. As a result, many people may be tempted to pick out a policy, then “set it and forget it.”
According to Joe Lundry, Financial Consultant, First Midwest Financial Network, this is one of the biggest mistakes clients make. “Most people take out a policy, pay premiums on it for 10, 15, 20 years, and never even look at it,” he says. “You can lose a lot of money on higher premiums when there is often a much less expensive way to do exactly what you’re already doing.”
Lundry advises having your agent look at your life insurance policy every two or three years, as well as with major life events, such as retirement, a job change, marriage, divorce, an expanding family or death of a loved one.
Evaluate Your Needs
According to Lundry, most people don’t know how much life insurance they actually need. “You really have to sit down with a pen and paper and figure out how much insurance it will take to maintain the same lifestyle,” he says.
Take into consideration aspects such as fixed bills, childcare expenses and spousal income. Long-term finances such as a mortgage, college education funds and an additional emergency fund also need to be included.
It’s also important to consider who will be responsible for any outstanding medical bills and funeral costs. Although it’s not something most people want to think about, you need to discuss the possibility of immediate death to determine your life insurance needs.
For most people, life insurance needs decline as you age because fewer people remain dependent upon you for income support. This wouldn’t apply, however, if you need to protect a business or will be leaving a large estate behind.
Consider Your Options
Life insurance products fall into two categories: Term and Permanent.
Term life insurance is the most cost-effective form of life insurance and is generally used to provide basic protection for a specified period of time. However, owners of term insurance accumulate no cash value in their policies.
Permanent life insurance policies generally provide coverage for the insured’s entire life if premiums are paid on time. The policies never expire and never need to be renewed. The death benefit goes to the beneficiaries upon the death of the insured. Permanent life policies have cash value or a savings feature.
Whole life, universal, and variable insurance are types of permanent life insurance:
Whole Life: In this type of permanent life insurance, the premium, death benefit and cash value amounts quoted at the time of purchase remain the same throughout the policy’s life. The benefit of such policies is that the cash value always stays intact and earns interest, and the death benefit will never decrease. The disadvantage is that the carrier invests the premiums conservatively, meaning these policies typically generate less-than-competitive returns.
Universal Life: This product is a flexible version of whole life insurance in which premiums can be adjusted within predetermined boundaries. As a consequence, the death benefit can vary. The flexibility of premiums also means that the policy’s cash value, which is interest-sensitive, cannot be guaranteed. However, many new universal life products on the market offer a minimum guaranteed rate of return and death benefit guarantees.
Because insurance rates are constantly changing, revisiting your policy and adjusting which type of policy you have can help you save money.
“I’ve been able to take a policy someone has had for five or 10 years, keep the same benefits and significantly reduce the cost, or even double the face amount and keep the premiums the same,” Lundry says. “It’s absolutely worthwhile to have someone look at it.”