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Life Insurance Policy Review
For life insurance policy owners there are many positive outcomes to a policy review, either by corrective action or replacement, if health permits:
- restructure an underfunded policy with adequate premiums
- increase death benefits
- reduce premiums
- suspend premium payments
- replace with a policy with a lifetime guarantee
- replace with a policy that includes a long-term care benefits
- exchange cash value into a new policy (1035 exchange)
- identify if the policy is in danger of lapsing (i.e., terminating)
- cash surrender a policy
- terminate a policy having insufficient premiums to keep it in force for life
Do you own a life insurance policy and have lost track of your agent? Then you are an orphan policy owner, and that is not advisable. I recommend you find a trustworthy independent agent, like myself, to be your policy’s agent of record. Your new agent can help you with customer service and to periodically review your policy. Also the agent of record can assist your beneficiaries when you pass away. Hundreds of millions of life insurance benefits go unclaimed because the beneficiaries are unaware of the policy’s existence.
If you are healthy enough to replace your policy, it’s possible to either save money or increase your death benefit. You are allowed to roll over your cash value of your current policy into a new policy, called a 1035 exchange, and this may give you premium savings or benefit increases even though you are older.
If the insured is in very poor health, it’s possible that premiums would no longer be required to keep the policy in force for the remainder of the insured’s life.
Understanding Annual Statements
If you receive an annual statement each year from a life insurance carrier, you owe it to yourself to have an independent agent review it.
Especially if you have a life insurance policy begun in the 1980s or 1990s, you owe it to yourself to have it reviewed by an agent. Do not assume you have whole life, and do not assume your coverage is permanent at the current premiums and will automatically cover the insured to age 100 and beyond. ’80s and 90s policies are generally Universal Life (UL), and you may be on a ship with a hole below the water line. Companies put out UL annual statements that vary in quality. The key information should be something like this:
If you were to pay no more premiums:
- Based on guaranteed assumptions, your policy will continue until (04/30/20xx)
- Based on non guaranteed assumptions your policy will continue to (05/30/20xx)
If you were to pay premiums at the same amount and frequency as have been paid:
- Based on guaranteed assumptions, your policy will continue until (07/30/20xx)
- Based on non guaranteed assumptions your policy will continue to (10/30/20xx)
Unfortunately some carriers don’t put these key facts clearly in your annual statement. Cash value figures are not indicative of the policy’s future performance. Request an in force illustration, sometimes called a current illustration, from your carrier. (1) Policy owners are generally allowed one free in force illustration per year. An experienced agent, like myself, can analyze the viability of your coverage to last the rest of your life and to meet your goals. Many policies from the 1980s and 1990s were poorly designed, the cash value of your policy may run out at some point, and the company will require a higher premium, on a year to year basis, to keep the policy from lapsing. You may request a premium solve illustration that will show, based on current non guaranteed assumptions, the premiums required to maintain coverage to a certain age. Request a “solve to age 100, as is“, which means assuming current premiums, interest rate and cost of insurance (COI) assumptions, project if coverage will last to age 100. Often it will not, projecting a lapse in coverage in the policyholder’s ’70s or ’80s. Policies taken out in the 2000s have under performed due to the low interest rate environment.
Don’t just file away your annual statement. Send it to an independent agent and broker for a check up.
Cost of insurance increases on Universal Life (UL) policies, current assumption UL, mostly policies begun in the 1980s and 1990s, but not exclusively.
Please contact me for a free consultation
Licensed Agent: Sean Drummey
phone: (910) 328-0447
email: spdrummey@gmail.com
national producer #5534308
(1) Lincoln National calls in force ledger a “current illustration” on their annual statement. They are sometimes called an in force ledger, in force projection or in-force ledger statement. Whatever the terminology, these illustrations provide much better and more clear information than an annual statement.
last partial revision: January 3, 2023