Life Insurance Policy Review is an important part of a holistic financial plan.
Life insurance is an important part of an overall financial plan. Regular life insurance reviews can determine if existing policies are performing as they should and if they’re meeting the client’s objectives.
There are many factors to consider that may impact the performance and suitability of a life insurance policy. Some of the most significant reasons to conduct regular life insurance policy reviews include:
Policy Funding Adequacy
Policies that have been underfunded may require additional premiums, adjustments to the benefits, or other corrective actions. Overfunded policies may require less premium.
Loans and Withdrawals
Any distributions from permanent cash value life insurance products can affect policy performance. Periodic monitoring and review is essential to help ensure policies are meeting the intended objectives and to help avoid unexpected tax consequences.
Crediting Rate and Charge Assumptions
Life insurance policies are illustrated under certain assumptions that can change over time, both positively and negatively. This may impact policy performance and needs to be monitored.
New product types, features, and riders may provide increased planning opportunities or address concerns your clients have.
Older life insurance policies may have a maturity date of age 95 or 100. People are living longer and new policies have options for longer guarantees.
Favorable Tax Treatment on Exchanges:
Life insurance is a unique asset that receives special treatment under the Internal Revenue Code. If an opportunity exists to improve on an existing life insurance policy, in most instances, a permanent life insurance policy may be exchanged, allowing the policyowner to obtain a new permanent life policy while continuing to defer income taxation on any accumulated gain.
Changes to Needs and Objectives
Risk tolerance can change over time and life insurance should be reviewed periodically to make sure the product type and design continue to be appropriate for your client. It is also important to review policy ownership and beneficiary designation to ensure the client’s original intent for the policy hasn’t changed.
State and Federal laws change over time. Regulatory changes can impact the planning objectives of existing insurance.
Carrier Financial Strength
Like other major financial institutions, life insurance companies are reviewed by rating agencies to analyze strength and stability. Over time carrier ratings can change increasing the importance of regular policy reviews.
Advancements in health care may have a positive impact on the mortality assumptions used to price life insurance products. Improvements to underwriting can mean lower cost for insurance.