3 Reasons Why You Should Review Your Life Insurance Policy
An annual review can result in lower premiums, a higher
death benefit for your beneficiaries and/or a more substantial cash value for you to access when you need it.
There are three major factors that affect the performance of a life insurance policy; interest rate returns, high expenses and older life insurance policy platforms.
- The first factor to consider is the interest rate return of the investment which provides the cash value growth in the policy. Most whole life polices rely
on a board of directors at an insurance company to determine the amount of interest that your policy is credited. With interest rates reaching and staying at
historical lows, policy holders are receiving low growth from their policies. Additionally, a fixed interest crediting amount has also stayed low with most
policies, around 2% - 3%. Your policy may be at risk of lapsing because the lack of growth in the policy isn’t keeping up with the cost to cover the death benefit.
- The second factor to consider is the fees in the policy. This includes both administrative fees and mortality charges (or death benefits costs). Older policies use
old mortality tables to determine the cost of insurance thus impacting the performance of your policy. With life expectancy increasing this is causing premiums
across the insurance industry to decrease. Meaning, if you have an older life insurance policy (10+ years), you may have higher overall mortality costs. Why does
this matter? It matters because if you have higher mortality costs more of your cash value will be used to pay for the higher cost of insurance.
- Third, there are new breed of life insurance products that put the odds of policy performance more in your favor. Index Universal Life products offer a way
for policy holders to participate in a portion of the stock market gains and stay steady when the stock market falls. These policies offer less in guarantees but
in return policy holders still have higher growth potential without subjecting the value to stock market losses.
Whether your goal is to maximize your death benefit, maximize your cash value or a combination of both it is wise to review your life insurance policy. There are new
life insurance programs developed more recently that offer: lower expenses, lower mortality charges and innovative growth strategies that offer stock market
participation without the stock market risk.
Cash value (or permanent) life insurance policies are more complicated than most other asset classes, so it would be prudent to review your life insurance policy
at minimum once a year. Students in our Financial Matters sessions know to do this and know to take advantage of new programs. They can leverage tools taught in our
XLT sessions to maximize the cash value in their policies.