Ensuring Financial Security for Your Clients
The Necessity of a Life Insurance Review
By Alan Friedman
It’s hard to believe that we are already in September, with Thanksgiving and the Holidays right around the corner!
September is Life Insurance Awareness Month, a time where an annual media campaign is held to raise awareness about the importance of life insurance in our lives. It is the perfect time to reach out to your clients and to evaluate their current coverage and their current needs.
Life is constantly changing, and with these changes comes evolving financial needs. Because of this simple fact, conducting an annual policy review is crucial to ensure that your clients have the proper coverage that aligns the with their current financial goals.
But certain life events and changes should automatically prompt a life insurance review. Here's a short list of these triggers.
Major Life Changes
Marriage or Divorce: Significant shifts in personal circumstances require adjustments to ensure coverage aligns with new responsibilities or the absence thereof.
Birth or Adoption: New additions to the family necessitate increased coverage to secure the future of your client's dependents.
Death: The passing of a loved one may affect financial responsibilities and life insurance needs.
*Beneficiary Review: This is also a good time to ensure that the beneficiaries listed on an existing policy are still appropriate.
Financial Changes
Career Changes: A new job or promotion could mean a change in income and financial obligations.
Increases in Income or Debt: A higher income might require more coverage, while increased debt could necessitate a reevaluation of existing policies.
Buying a Home: Significant purchases, such as a new home, may call for additional life insurance to cover mortgage liabilities.
Retirement: As clients transition into retirement, their life insurance needs might shift, requiring a policy adjustment.
Health Changes
Improved Health: If your client's health has improved since the policy was first purchased, they may qualify for lower rates or better coverage.
Declining Health: Conversely, declining health could necessitate adjustments to ensure adequate coverage. This is a good time to consider converting an expiring term policy to a permanent plan of insurance.
Product Changes & Policy Performance
Insurance products and product performance can change over time. Reviewing a policy allows you to assess its performance, ensuring it still meets your client’s expectations in terms of returns, premiums and coverage.
Changes in Market Conditions
Interest Rate Fluctuations: Interest rate changes can directly impact cash accumulation products. Is your client’s policy performing as originally projected?
Inflation: Inflation can erode the purchasing power of a life insurance policy over time. For example, a $1,000,000 term policy purchased 15 years ago now has the spending value of approximately $600,000, potentially leaving your client underinsured by $400,000.
Changes in the Life Insurance industry
Carrier Financial Stability: Ensuring that the insurance carrier is still financially stable is vital for the continued reliability of the policy.
Changes Tax Laws (State and/or Federal)
Estate Tax Considerations: Currently, the provisions of the Tax Cuts and Jobs Act allow for a large estate tax exemption of $13,610,000 per person ($27,220,000 per married couple), with these exemptions scheduled to sunset in 2026. If the change occurs, the number of people impacted by the federal estate tax could increase dramatically.
A life insurance review helps ensure that your client's coverage is still adequate, can potentially save them money, and offers an opportunity to make necessary adjustments to align with their current financial goals. Additionally, it can help identify gaps in coverage and open new sales opportunities.
A recent policy review I did resulted in a client maintaining the same amount of life insurance coverage while adding long-term care (LTC) coverage, saving more than $16,000 per year in premiums! This also generated a $20,000-plus commission for the agent!
Life Insurance Awareness Month is the ideal time to initiate these important conversations with your clients. We're here to support you in conducting these reviews and ensuring your clients are fully protected as they move forward in life.