Have you recently experienced a life change, or do you have a policy that is coming up for renewal? Reviewing life insurance policies may not sound like much fun, but periodically doing so will ensure your beneficiaries are protected and that you’re not paying more than you should for coverage. Let’s start with the basics.
How much life insurance do you need?
Life insurance is not just for end-of-life expenses and paying off debt. It also can create an income stream for your beneficiaries. Let’s say your income is $50,000 per year. For example, a $1,000,000 benefit, if invested, can potentially create a $40,000 annual income without using up the principal.
What life events call for an insurance review?
The big events are marriage, divorce, retirement, birth of a child, death of a beneficiary and purchase of a home.
The reason it is so important to review beneficiary designations on life insurance, is that these assets transfer upon death by the beneficiary, not by the will. So, the beneficiary designations must be accurate.
And, as you experience life changes, your life insurance needs will fluctuate. You typically need more insurance when you are younger, with young children and a mortgage, than you do when you are retired and receiving pension income. However, as more retirees carry debt (mortgages, auto loans, and credit card debt) into retirement, this can change the life insurance needs. Every situation is unique, and you will need to determine what is right for you and your beneficiaries.
Other reasons for a review
If you own a policy that was issued Standard or rated due to a health condition that has now improved, it is worth your time to re-apply and see if you can reduce your premiums. Contact your current insurance agent and see if their underwriting department can review your situation and determine if a rate reduction is possible, before going through the application process again.
If your term policy was issued more than seven years ago, you may be able to apply today and receive lower rates. Or, if you have an old policy with increasing premiums and decreasing benefits, you really need to review it annually to ensure it is still of value. These policies typically have an age trigger, where the policy premiums and benefits change. I have seen cases where people were paying $1,000 per year in premiums, for a policy that had a $2,000 death benefit.
And, if a policy is getting ready to renew at a higher rate (for example, a 20-year term policy in the 19th year), research whether you still need the coverage. If you do, find out what it will cost to renew that policy, then research what a new policy will cost so you can compare.
A great website you can use to shop for term life insurance is www.selectquote.com. You enter your personal information, select the amount of coverage you desire, and the site forwards this information to major carriers.
These carriers then send quotes directly to you for consideration. The application process is done through the mail, and a mini-medical exam may be required.
Sherri Goss is vice president of Rosenberg Financial Group, Inc., with offices in Macon and Warner Robins. Contact her at 922-8100 or sherri@rfmoney.com.
