You’ve heard me remind you to review your estate planning documents every 3 years. Add a review of your life insurance as well. Have beneficiaries changed? Do they need to be updated? Have people come and gone in your life and you’d like someone else to receive the funds?
Also run in force illustrations for all of your life insurance policies. Life Insurance policies have different names today so they could have variations of the following words; Annual Renewable Term up to 30 Year Term, Universal Life (UL), Indexed Universal Life (IUL), Variable Universal Life (VUL), Whole Life (WL), Flexible Whole Life, Flexible Premium Whole Life, Variable Whole Life. And there are many other titles, descriptions, and acronyms to describe various life insurance policies.
The main reason to review this is changing interest rates being credited to policies in the last 10 to 15 years. This impacts the dividends being paid as well, if the policy pays dividends.
I met with someone recently who started some great policies back in the 1980’s and 1990’s. All of them are with reputable companies and the policies are good policies. Nothing weird going on. BUT, the premiums were calculated using an illustrated rate of 9%, which was the current rate back then. We’ve seen interest rates decline and we’ve seen minimum rates being credited to these policies for at least 10 years. This has a Major impact on the cash value in the policy.
Unfortunately, this person felt they didn’t have to make any changes to their policies or beneficiaries and the original agent who helped them get the policies in force is no longer in the business. Therefore, nothing was reviewed. Now the cash value has been depleted keeping the coverage in force and the new premium going forward is going to be substantially higher. In one case, the monthly premium of around $140 a month is increasing to almost $1,700 a month. Not affordable so he’s going to lose the coverage
This potential change in interest rates was disclosed when the policy was issued but most people don’t review things regularly. This could have been discovered 10 or 15 years ago and the monthly premium could have been increased then to a modest, and affordable, amount. This would have kept the policies in force for life but now this person is dropping 2 policies. Yes, his financial situation is more stable today but some of these policies were written to take care of nieces and nephews who now have kids of their own and they’d like to continue to provide this life insurance to them as part of their estate planning.
So pull out the policies and let us review them for you. If everything is still in order, great! You can now breathe easier. If something needs to be adjusted, you can more easily make the adjustment now vs. losing the coverage in the future.
Article By: Mark A. Buhrke, ChFC®, CLU® , Vice President, Private CFO™
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