How to Review Life Insurance at the End of the Year

Tuesday, October 25, 2022 22:41 Posted by Admin

Your insurance policy isn’t a one-and-done deal. And yet, it’s easy to sign the document and put it away in a drawer. In fact, too many people do just that, even forgetting where they left their policies. Then, the first time the policy crosses their minds is when it’s time to renew it or make a claim.

Unfortunately, by that time, the damage might already be done.

Insurance policies, including life insurance, need some updating now and then. Your circumstances could change, and those changes may impact your ability to use the policy fully. At the very least, the policy might no longer reflect your goals accurately.

That’s why you should review your life insurance policy annually. And if you’re not familiar with that term and wonder how often is annually, the answer is simple: It should be a once-a-year review.

Let’s look at the review process and how to make it as easy as possible. But first, we’ll explain why this review is so important.

Why You Should Review Your Life Insurance Policy

As you probably know, life insurance plays an important role in any household. When the breadwinner of the family is insured, their loved ones will be safe from financial turmoil in case of the person’s disability or death.

This fact alone already makes life insurance worthy of your full attention. But there are other quite particular reasons why everyone should review life insurance once every year.

Crucially, life insurance policies are most effective when set according to Human Life Value (HLV). This factor takes into account the economic value of one’s life and can be very helpful in determining the optimal insurance policy.

Income is, of course, an important part of the HLV equation, and most people won’t have the same income throughout the years. If your salary increases, the cover should higher in proportion. Furthermore, other financial factors like the number of dependents and liabilities may change.

Since there’s a good chance that your financial worth will increase in a year, an insurance policy review would be in your best interest.

On the other side, it may turn out that you or your loved ones will have larger financial needs in the future. It’s not unusual for people to underestimate the amount of financial support, especially before crucial life events. For instance, purchasing a home, having a child, getting married, or contracting a severe illness are only some of the factors that can push your projections off-kilter.

Various factors can impact life insurance policies, and that impact can be quite noticeable. According to Insurance Information Institute reviews, total life insurance premiums have increased by 1.9% between 2020 and 2021. While that percentage might not look like much, it will amount to a considerable sum in the long run, as evident from real-life examples of life insurance.

Luckily, you can update your policy to accommodate for all those changes. But the initial step in that process is to do a life insurance policy review.

Life Insurance Policy Review – The Basics

The first thing you should do when performing an insurance policy review is to find out whether the policy is still adequate. You can do that with the help of an online HLV calculator and some basic math. For example, if you’re in your early or mid-30s, your cover should be a minimum of 20 times the amount of your current annual income.

Next, your insurance review should take into account the current living standards and needs, as well as those your family might have in the future. Of course, nobody can predict the exact circumstances with absolute accuracy, but you can arrive at a safe estimate of sufficient coverage.

You may also want to take the opportunity to consider other types of cover. Revisiting your life insurance policy will provide the perspective and help you understand whether additional coverage is necessary.

In essence, they key question you should ask is: What’s the exact purpose of your life insurance? While the general answer may seem obvious, it’s important to know what scenario you want to cover in case you’re not around to take care of matters. Life insurance can serve different purposes like paying estate taxes, replacing your income, or covering your children’s tuition.

The most pressing matters in terms of your policy will undoubtedly relate to the financial security of your loved ones. If you want to get a better understanding of whether your policy is sufficient, consider two crucial factors:

  1. What immediate expenses would your family have in the case of your death? How much would they need for potential medical bills, the funeral, and other costs?
  2. If your income is gone, what would be your family’s monthly needs? Also, for what period would they need to rely on any additional income?

How to Review Life Insurance Yourself

If you want to do the insurance policy review yourself, you’ll need to keep track of the following:

  • Total death benefit
  • Particular riders or clauses
  • Whether the policy is term or whole life
  • Investment performance

The total death benefit is the amount that gets paid in case of the policy holder’s death. This amount is particularly important when determining if the policy is sufficient or not. If you find that the benefit is too small, it might be wise to consider a new policy or a revision of the current policy.

Next, your policy could contain riders that expand your options. For instance, the policy might include certain premiums or waivers in case of disability. Alternatively, a clause could allow early access to death benefit if a terminal illness is diagnosed.

The duration of your policy is the third crucial aspect. If the policy is whole life, it will never expire unless you stop paying the premiums. These policies tend to be costlier by a large margin, but will provide two types of benefits: death benefit and the accumulated cash value.

On the other hand, term policies provide coverage for a certain period, from five years to several decades. Once the term ends, the policy will expire. A term policy may cost up to 15 times less than whole life coverage and is relatively straightforward. However, if the policy expires, it will yield no returns whatsoever.

Finally, if there’s cash value within your policy, that money will likely be invested. How those investments perform on the market could reflect on your premiums. For example, if your policy is doing well with optimistic market forecasts, your premiums could go down. Conversely, if the investment is underperforming, the premiums may increase.

If your policy’s cash value is used for investments, you’ll be privy to the information about its performance. In that case, you can contact your agent and request a so-called “in-force illustration.” This is essentially a lifetime projection of the policy’s performance, and your personal insurance review is the best time to check that data.

Once you have all this information, you might wonder what to do with it. The answer is relatively simple: Note all relevant details in a separate document.

It would be a good idea to create a life insurance policy review template. This document isn’t official and you can make it in any form that’s most convenient for your future use. Your template could be a spreadsheet, text document, or even written down on a plain paper pad.

There are several advantages to creating your own insurance policy review template. Firstly, you won’t need to bring up the actual insurance documentation every time you want to do a review. Instead, you’ll have the essential info in one place.

Secondly, you’ll do away with the confusion when going through the official papers. Once you extract the most relevant data onto your template, you’ll be able to do the next review at a glance.

Finally, writing down the information regarding your policy will help you remember it. The straightforward layout will also make the data more understandable.

Here are several other useful tips when reviewing your life insurance:

  • Write down the policy number, original insurance date, and expiration date
  • Note all important contact information
  • Ensure the list of your beneficiaries is complete and accurate
  • Get more recent insurance quotes and compare them to your premiums

When you’re done with the review, you’ll have an easier time deciding if your policy needs an update. The insurance review might take some time, especially on your first try, but could be well worth the effort.

Of course, there’s an easier way to get your review done – by contacting a life insurance agency. Let’s look at how that process would work.

How to Do an Annual Life Insurance Review With an Agency

Your insurance agency may contact you to review life insurance information, which can be of great help. However, you can also get in touch with your agent and initiate the review yourself. In any case, the agent will likely ask you a list of questions relating to your circumstances:

  • Have you ever done a review of your life insurance policy?
  • Has your marital status changed?
  • Did you have children since your policy started?
  • If you have older children, did any of them leave your household or return home?
  • Did any of your family members die recently?
  • Do you have particular financial plans for the future, i.e., college fund or retirement?
  • Are you supporting any elderly individuals or people with special needs?
  • Did you buy a home?
  • Have you started a business? If so, have you sold it or are you a business owner at the moment?
  • Have your salary or employment status changed since you signed the policy?
  • Did you receive an inheritance recently?

These questions are intended to assess whether your financial situation has changed drastically. The answers you provide will give the agent a good indication of whether your policy is on the right track.

Once the agent performs this initial assessment, they’ll likely ask you about specific details regarding your policy:

  • Is your existing policy in line with its purpose and goals?
  • If your policy is term, would you consider going over to a whole life, i.e., permanent policy?
  • Do you need a more flexible model of life insurance?

In addition, the agent might inform you about any potential increases in premiums, ask about your current financial rating, and offer additional features like living benefits or riders.

After this extensive review, the agent will probably obtain a copy of your policy. They’ll go through all crucial information, including the policy’s yearly premium, cash value, face amount, surrender period, and info about your beneficiaries.

Finally, you’ll get a detailed review of your policy along with possible changes that might align the insurance with your needs and goals.

Tailor Your Life Insurance Policy

Your financial requirements may change drastically over a single year. You could get a salary increase or lose your job; you or a family member could get ill, requiring special attention; milestone life events might happen, such as having a baby, buying a home, or getting married. And, of course, that’s not all.

Life is always subject to change, and life insurance policies should reflect that. While planning for the future is complicated, you can make it less uncertain by revisiting the existing plans. In that regard, regular reviews of your life insurance policy are a step in the right direction.

It’s worth mentioning that life insurance policies are often made based on current life conditions. Plus, they may be done according to inaccurate projections and, as a result, prove insufficient later.

Annual life insurance reviews will help you tailor your policy more precisely. If you can dedicate the time and effort, you can even do these reviews yourself. But you could make the process easier and potentially get more reliable results by working with a professional.

If you want assistance in reviewing your policy, Taylor Benefits Insurance is here to help.

Written by Todd Taylor

Todd Taylor

Todd Taylor oversees most of the marketing and client administration for the agency with help of an incredible team. Todd is a seasoned benefits insurance broker with over 35 years of industry experience. As the Founder and CEO of Taylor Benefits Insurance Agency, Inc., he provides strategic consultations and high-quality support to ensure his clients’ competitive position in the market.

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