When is the last time you gave any thought to what would happen to your family if you died today? Would your burial and final expenses cause them financial distress? Would your children still be able to go to college after losing the support of a parent? Though not a pleasant topic to dwell on, it’s a critical issue when planning for the future financial well-being of your loved ones. According to a study conducted by Life Happens and LIMRA, 1 in 3 households would not be able 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 underinsured. (2)
September is Life Insurance Awareness Month, so what better time than now to revisit the reasons why a life insurance review is a vital step in ensuring your financial security. Here are 4 reasons why you may benefit from a life insurance review.
1. You Could Outlive Your Policy
Did you know that not all policies last until you need them? In fact, there are several types of policies that can expire before you die. What would happen if you outlived your life insurance policy? There are several circumstances, such as poor performance, loans, incorrect ownership, or outdated beneficiary choices, that could result in a mess for your loved ones when your policy is needed most. One key fact to verify is whether or not there is a chance your current policy may have an expiration date of which you aren’t aware. 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)
If you outlive your policy, the fallout could be calamitous. Make sure you understand your level of risk and capacity for this situation and plan accordingly, especially if you purchased your life insurance policy at a young age.
2. Your Policy Might Not Be Tax-Efficient
Life insurance is commonly thought of as being income tax-free when collected, however, some policies are inadvertently set up to be taxable upon death. If your policy is designed this way, would that cause issues for your beneficiaries? If it would, or if you aren’t sure it wouldn’t, 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. The question is, have you seen an updated estimate since then? How does it compare to what you were originally shown?
It’s possible that your policy is outperforming its original projection. Unfortunately, considering the direction of the economy over the past few years, it’s more likely that the policy has underperformed. If so, what adjustments might that mean for the plans you’ve made for your loved ones?
Meeting with an advisor not only allows you to get updated projections, but also to run the numbers against your goals and plans 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
Fortunately, 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 other options, such as coverage for chronic illness or long-term care. Furthermore, you now 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 since you first purchased your policy, you may need to add additional coverage. Adding additional coverage, such as a long-term care rider, on your existing life insurance policy can be more cost-effective than buying a separate policy.
Whether or not you need to add features, it is always a prudent move to verify that your beneficiaries are up to date and make sure you still have the correct amount and type of coverage to meet your needs and goals.
Update Your Policy
When it comes to life insurance, it is often difficult to be sure your policy is doing what it’s supposed to do. Navigating the different types and terms can be confusing and even downright overwhelming at times. However, it is a critical piece of your financial wellness and shouldn’t be put off. When you come in for an insurance update, we at Match Point Financial are prepared to help you examine your policies in depth, giving you increased understanding and confidence that you have all you need and your plans are on track. If you are concerned about your life insurance policy or would like to schedule a review, contact us today by calling 352-207-8014 or by sending us a message online!
Chris Reed is a financial advisor and the founder of Match Point Financial. Since 2002, he has been helping people make informed choices with their money and pursue their financial goals and objectives. He started his career with MetLife and has continued seeking to provide his clients with the best possible service through A.G. Edwards, UBS, and finally through partnering with Cetera Advisors LLC and forming his own independent firm in 2010. Learn more about Chris by connecting with him on LinkedIn or schedule a free call with Chris here to learn more about how he may be able to help your specific situation.
Financial Advisor: Securities and advisory services offered through Cetera Advisors LLC, member FINRA/ SIPC, a broker/dealer and a Registered Investment Advisor. Cetera is under separate ownership from any other named entity.
(1) 2016 Insurance Barometer Study. https://www.lifehappens.org/industry-resources/producer/barometer2016/