A guide to your life insurance review
Do you have life insurance? When you bought your current policy, was it due to a special event in your life, such as getting married, buying a home, or having or adopting a child?
Chances are the choices you made when you purchased your policy were influenced by the events in your life at that time. But life changes; it’s important that your life insurance protection changes with it to cover your new obligations or goals.
Your life has changed. Has your life insurance?
Life is full of changes. Have you experienced any of these or others since you last reviewed your coverage with your insurance professional?
- Purchased a larger home
- Downsized into a smaller home
- Purchased a vacation home
- Received an inheritance
- Had or adopted more children
- Have children who are older, starting to go to college
- Have children who are adults, perhaps out of the house
- Health changes
- Annual income increased or decreased
- Career trajectory change
- Have elderly parents to care for
- Have grandchildren
- Are close to, or in, retirement
- Financial obligations decreased or increased
- Want to leave a legacy
To keep your life insurance current and most effective, it’s important to review your coverage whenever you experience a meaningful life event. Barring a life event, insurance should be reviewed annually to make sure your protection and/or savings amount is sufficient to reflect your goals.
Here is a simple rule of thumb: If you can’t remember the last time you spoke to a life insurance professional about your life insurance policy, then now is the ideal time to arrange a review meeting.”)
The six-step guide to reviewing your life insurance
When you sit down with your insurance professional, be sure to cover the following six steps to maximize your conversation and make the ideal insurance decisions:
1. Assess your current coverage and discuss how your life, financial obligations and objectives have changed since you purchased your last policy.
This thorough review of current and potential future liabilities and your objectives will help you determine who you are trying to protect today and tomorrow, and what else you may want from your life insurance.
2. Make sure the right beneficiaries are listed in your policy.
Additional children, grandchildren, death, divorce or marriage can change the people you want to benefit from your life insurance. This is the ideal time to update your beneficiaries.
3. Evaluate your current and forecasted financial profile.
Inventory the assets you currently have or may build in the future for your family, and assess whether your income will be changing over the next five to ten years. This is also a good time to ensure you are the best choice to own the policy from a taxation perspective. You can discuss this during your insurance review and contact your accountant, if necessary.
4. Review any changes in your health, or ways that insurance companies have changed underwriting policies since you last purchased insurance.
You may qualify for more attractive policies now; or your current insurance may provide opportunities to convert into other types of coverage.
5. Determine how much more, or less, insurance you will need to meet your current and forecasted protection and/or other objectives, like retirement savings.
This will help you determine which type of policy works best based on your needs. Ask about how to enhance your existing coverage or about any new, alternate or additional policies that may better meet your changing needs.
6. Identify your budget for insurance coverage to find the ideal solution that fits comfortably into your lifestyle.
The cost of life insurance is predictable; it’s important to know what you can afford in order to pick the right policy. At this stage of the discussion, it will also be important to know the financial strength of the insurance company behind the policies that work best for you, and that company’s ability to keep costs in line with your expectations while meeting their long-term obligation to you.
What else you need to know to have an effective review
There are some additional, important considerations to keep in mind when doing a policy review.
First, remember that life insurance is an important element of your overall financial picture. Any changes you make to your life insurance coverage should not be a financial burden to maintain.
Your insurance professional should recommend a replacement to your existing life insurance only when it’s in your best interest. They should fully disclose the potential consequences of a policy replacement and any financial implications concerning your existing and proposed coverages.
Other points to keep in mind if you’re considering a change in life insurance:
- If medical underwriting applies to a policy you are applying for, certain requirements may have to be met to qualify for coverage.
- A new surrender period and surrender charges may apply, affecting your available cash surrender value.
- The new coverage may have a new contestable period which means a claim may be reviewed for contestability.
- Existing coverages with outstanding loans that are replaced may result in income tax consequences if the loan balance exceeds the cost basis.
Life insurance is a powerful financial asset that can help protect your family in case something happens to you.
Keeping your life insurance up to date so that it reflects the changes in your life is critical. Otherwise, it may not fulfill your protection and personal objectives when your family may need it the most.
419531D CAN/US (01/21)