Life insurance is something that is vital for every adult, and some children. Life insurance provides a death benefit when one is needed most, when someone has died. There are multiple types of life insurance including term, universal life and whole life. Within those broad categories there are certain subsets like annual renewable term insurance, variable universal life insurance, indexed universal life insurance, blended whole life insurance etc. I try to help people understand how much and what kind they might need to research.
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!