Why Don’t People Audit their Life Insurance?

It seems that everyone who pays close enough attention to their finances audits their auto/homeowner’s insurance as well as compare credit cards to make sure they are getting the *best* deal out there, but no one talks about auditing their life insurance.

What Does Auditing One’s Life Insurance Look Like?

Just like everyone should know what their balance sheet looks like everyone should have an intimate knowledge of their protection coverage. I shudder every time I hear a friend or family member say, “I think I have $X but not too sure.” You aren’t sure? You don’t know how well or how poorly you protected your surviving spouse? you don’t know whether you have enough so that surviving spouse can pay off the house? Send the kids to college? Ridiculous and unacceptable.

Review Your Death Benefit

First thing is to take a quick look at your death benefit.  Make sure it is still adequate.  Did you suddenly increase your lifestyle or income? Maybe you need more.  Maybe you just finished paying off your home and you should have less.  Either way, you should know that number.

Another thing to consider is whether that number decreased without an active decision on your part.  If you have a variable life or an indexed universal life it is possible that your death benefit decreased just simply because the market didn’t perform up to projections.

Review Your Cash Values

If you are a fan of a permanent cash value, now is the time to take a look at your cash values.  How is the product performing? Is it performing exceptionally well compared to your other safe assets? If so, maybe it is time to try and shove additional money into it.  If it is not, maybe it is time to figure out why. Is the company performing well? If so, did they increase mortality expenses.  If not, maybe it is time to take your cash value (which is an asset) to another company via a 1035 exchange.

Review Remaining Time Left on your Term Policy or VUL

It is shocking how many times a client’s file will come across my desk and they have zero clue that their 20 year term that they bought when they were 25 is about to expire and now they have type 2 diabetes and love smoking.  There may be a way to salvage that policy before the premiums just 200% in the 21st year.

Similarly, most variable universal life insurance policies sold in the 80s will illustrate a crash scenario if premiums are kept steady and we remain in a low interest rate environment.  You, as an owner of that asset, should understand those scenarios when your asset may just go to zero.

 

Your life insurance is an important part of being a responsible adult treat it as such!

6 Responses to Why Don’t People Audit their Life Insurance?

  1. We bought 25-year term life policies for both my wife and myself shortly after our son was born. We waited until after he was born to make sure he wasn’t a special needs person. Mine costs $100/month, and hers is $65/month. We will not try to renew the policies when they expire, since our house is paid off, and our son should be out of college by then.

    • Bryce, I hate that rationale! Not sure how old you are, but it is just silly to think that you two won’t have a need for a death benefit post that 25 years. Lets say you are 30…think about your parents would one spouse still have an insurable interest on the other with regard to a financial need?

      Even if you are 40 or 45…what about pension (Joint-Survivor vs Single life) or SS Payments.

      • Hi Even, I am 57. My wife is quite a bit younger. She won’t be eligible for SS for a long time. Based on our assets, we could easily retire in 5 years, although we will probably keep working for another 9 years. Our term life policies still have more than 13 years to go. Our son would be a multimillionaire if we both happen to die within the term life period. Upon our death, my wife’s father is the named trustee of our son’s finances until he turns 25. My wife’s sister would take over as his guardian.

  2. Gosh…that kind of amazes me, that people don’t even know how much life insurance they have. On the other hand…when I had the misfortune of having a job, a number of life insurance instruments coalesced simply by virtue of employment. And I have to admit, I didn’t pay much attention to them — you got, for example, accidental death and dismemberment coverage as a virtue of working for the state, and something similar as part of your disability coverage, and on and on. At one point I had several of these.

    A good way to create a record is to create a “guide” for your family pointing them to all the financial instruments they need to know about in the event of your untimely croaking-over. Insurance policies would figure prominently, and you’d get them listed in the same place as all the other elements of your financial picture.

    • You’ll see a lot of professionals use the protection piece like you mention as a base of a house that is your financial life.

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