Have you ever thought about what would happen to your family if you died? Would they be able to cover burial and funeral expenses? Would your kids be able to go to college? It might not be a pleasant thought to dwell on, but it’s an issue that is critically important to their future financial well-being. According to a study conducted by Life Happens and LIMRA, 1 in 3 households would not be able to cover their living expenses if the primary income earner passed away. (1) Despite those dismal numbers, more than 4 in 10 people don’t own a life insurance policy in any amount, and 40% of those who do say they are underinsured. (2)
September is Life Insurance Awareness Month, so it’s the ideal time to revisit the reasons why a life insurance review, while not exactly the most exciting of tasks, is important for your financial security. Here are four reasons why you may benefit from a life insurance review.
1. You Could Outlive Your Policy
What would happen if you outlived your life insurance policy? Poor performance, loans, incorrect ownership, or beneficiary choices could lead to a mess for your loved ones when your policy is needed most. There’s a chance your current policy may have an expiration date of which you aren’t aware. Many policies are set to endow at age 95 or 100, and while that may seem like a long time to live, in the past 30 years alone, the U.S. centenarian population has grown 65.8%. (3)
If you outlive your policy, the repercussions could be disastrous. Make sure you understand and plan for this situation, especially if you purchased your life insurance policy at a young age.
2. Your Policy Might Not Be Tax-Efficient
Life insurance is often thought of as being income tax-free at your death, but some policies are inadvertently set up to be taxable at death. If your policy was created this way, would that cause issues for your family? If it would, or if you aren’t sure if it would, an advisor may be able to help you rectify this problem and create a strategy to ensure your family isn’t caught off guard.
3. Your Policy Could Be Performing Better
How do you know if your life insurance policy is performing as expected? When you purchased the policy, you were most likely provided a projection of values, but have you seen an updated estimate since then? How would it compare to what you were originally shown?
It’s possible that your policy is outperforming its original projection, but considering the direction of the economy over the past few years, it’s more likely that the policy has underperformed. If so, what might that mean for you and your plans for your loved ones?
Now may be a good time to update your projections and ensure they are on track. Most often, it’s easier to adjust a policy before it goes too far off course. Your advisor can help you evaluate how the policy has performed since you purchased it and how it is projected to perform in the future.
4. Your Policy May Be Outdated
Throughout the last few decades, life insurance has evolved into a more valuable and robust risk management tool. Today’s policies can cover more than just premature death. There are options to cover chronic illness and long-term care, and they have the ability to direct policy cash values among multiple options—not just the insurer’s general account.
If it’s been a few years or decades since you first purchased your policy, you may need to add additional coverage, such as long-term care, with a rider, which can be more cost-effective than buying a separate policy.
Even if you don’t need to add features, you may still need to verify that your beneficiaries are up to date and check if you have the correct amount and type of coverage.
Update Your Policy
Life insurance can be confusing, and it is often difficult to know if your policy is doing what it’s supposed to do. Through an insurance update, we at Strong Tower Associates can help you examine your policies in depth so that you can have increased confidence that your plans are on track. If you are concerned about your life insurance policy or would like to schedule a review, call 814-325-9806, email [email protected], or book a meeting online!
Ash Toumayants is a financial advisor and the founder of Strong Tower Associates. For over a decade, he has helped hardworking people across Central Pennsylvania prepare for retirement. Fueled by a passion for helping people see through the veil of confusion that shrouds the financial world, his goal is to educate his clients so they can make more sound choices regarding their financial future. A Penn State graduate, he currently lives in State College with his lovely wife, Noelle, and their two adorable children. Learn more by connecting with Ash on LinkedIn or emailing [email protected].
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(1) 2016 Insurance Barometer Study. https://www.lifehappens.org/industry-resources/producer/barometer2016/