With the proper guidance, life insurance can provide unique financial planning benefits, including an extremely tax-efficient way to transfer wealth to your heirs.
Until recently, rates on life insurance policies have been extremely low, making it easy for consumers to comparison-shop for a policy that worked with their goals at competitive premium rates. However, 2009 saw premium rates on life insurance policies increase for the first time in decades. As of last summer, reported increases for certain products ranged between five and 15 percent, and many experts agree this is probably the start of a trend.
So, if you’re unsure whether your life insurance policy is properly aligned with your financial goals—or if your premiums have gone up and you’re wondering whether you could do better—your window of opportunity to find out may be narrower than you think.
Not All Policies are Created Equally
There are inherent death benefit and tax advantages to all life insurance policies. However, there are important differences for you to be aware of between the two basic types of policies.
Term insurance generally has lower premiums but does not build up cash values that you can use in the future. It generally provides coverage for a level period—10, 15, 20 or 30 years—and pays a death benefit only if you die during that term. It usually provides the largest insurance protection for your premium dollar.
Permanent insurance policies charge higher premiums at the beginning than comparable term policies. The part of the premiums not used to cover policy charges and expenses is invested, either by the company or by you, and builds up a “cash value” that may be used in a variety of ways in the future.
Permanent life insurance policies—including whole life, universal life and variable universal life—are typically designed to provide permanent death benefit protection and cash accumulation.
When assessing your life insurance needs, it is important for you to understand these differences in order to ensure that the proper policy type is utilized to meet your personal needs and financial objectives.
Regular Insurance Reviews are Essential
Depending on how long ago you purchased your current policy, you may no longer have adequate coverage. Changes in your personal or professional status and income level can affect what you’ll ultimately need from your life insurance policy. These trigger events include:
- Change in marital status
- Becoming a parent or grandparent
- Change in employment status or benefits
- Change in health or lifestyle
- Change in business ownership
- Change in assets or net worth.
Of course, if your current or future goals and objectives have changed substantially, the most appropriate life insurance policy for you may have also changed. Your financial advisor can help assess your current and future needs, and after gathering your current policy information, work with you to determine if your existing policy is on track to help you meet your long-term goals. This review process provides a greater understanding of past and projected future policy performance. In addition to determining whether you have appropriate coverage, the review analyzes ownership structure, beneficiary designations and overall cost effectiveness for your policy.
The Time to Review Your Policy is Now
As consumers’ needs have evolved, so have the life insurance industry’s new product features. Along with fluctuations in premiums, interest rates and carrier ratings may affect the suitability or relative value of your policy over time.
Depending on how long ago you established or last revisited your policy, you could be well past due for a review. And, if you’re thinking about re-assessing your existing policy or establishing a new one, acting sooner could be to your advantage. iBi