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It might be time to review your life insurance needs

by John Levan | Contributor
July 28, 2020

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Reviewing and updating should be an integral part of our financial lives, but we often fail to do them simply because we don’t think about it, or nothing happens to prompt us. Well, consider this to be your heads-up.

There are all sorts of things that need to be examined regularly: investments, estate plans, cell phone plans, car insurance and subscriptions are among the most prominent. Equally overlooked and essential is a re-evaluation of your life insurance coverage.

Today’s life insurance policies contain many more benefits beyond merely providing liquidity at death. And if you purchased your existing policy decades ago and it has been filed away since then, there is a good chance it no longer meets your needs or goals. Here are some of the life events that could have a significant impact on your life insurance requirements:

  • Marriage or divorce
  • Buying a home
  • The birth or adoption of children or grandchildren
  • Significant changes in the health of you or your spouse/partner
  • A loved one who requires long-term care
  • The financial responsibility of an aging parent
  • Refinancing your mortgage
  • Receiving an inheritance

If one or more of these events has occurred since your last review, you might be a prime candidate for a life insurance upgrade. But first, let’s take a look at some of the features that are included in life insurance plans today that you may not be aware of or are missing from your coverage.

Commonly overlooked life insurance features you should know about

  • Cash value: These policies provide death benefits but also accumulate value during your lifetime. You have the option to use the cash value as a tax-sheltered investment, a fund from which to borrow, or you can use it to pay the policy premiums at some point.
  • Guaranteed purchase option: This feature allows you to purchase coverage &ndash at designated future dates or life events – without a health exam.
  • Waiver of premium: If you become disabled or seriously ill, the premiums of your policy are paid for you.
  • Long-term care riders: Some life insurance products contain the option to use the benefits of your policy to pay for long-term care in exchange for a reduction in the life benefit.
  • Cash withdrawals and loans: Most whole life and universal life policies allow you to withdraw or borrow money. The cash value of the policy is your collateral, and the interest rates are typically low. As mentioned earlier, you can also use the cash value to pay your premiums if the need arises. However, if you don’t pay back the loan, your beneficiaries will receive a reduced death benefit.
  • Spouse or child term riders: Some life insurance policies include this feature, which allows you to purchase term life insurance for your spouse or dependent child, up to age 26. This is often a more affordable option than buying separate policies for them.
  • Accelerated death benefit: If your policy has this feature, and you are diagnosed with a chronic or terminal illness, you may receive cash advances against your death benefit. Many people use the money to help pay for treatments and other expenses.
  • Mortgage protection: A feature usually found in term life policies, it will pay your mortgage if you die.
  • Survivor support services: Some life insurance policies offer services that provide objective financial and legal assistance to your beneficiaries.
  • Employee assistance programs: This feature provides resources (often free) to help you with issues such as substance abuse, stress, marital problems, legal concerns, and significant life events.

These features could play a critical role in your or your family’s financial life in the future. As you review your existing policy, use this list to ensure it has these features. And if you decide it’s time to upgrade, use the list to help you build the best life insurance policy for you.

Is it possible to get a better policy by converting an older one?

Suppose you bought a term life policy years ago to cover you for a specific period, such as 20 years. As you review your policy, you notice that it will be expiring over the next year, and you’re wondering about your options. Perhaps your children have grown, you’ve repaid most of your debts and you have accumulated some savings. In other words, your needs for term life have diminished, and you want something more suitable.

Most term life insurance is convertible, which means you have the option to convert some or all of it to a permanent policy, such as universal or whole life insurance. Permanent insurance will last your entire life, and you can convert to it without taking another medical exam or even answering health questions. Are there any other compelling reasons to make the conversion?

Here are four reasons for you to consider converting to a permanent policy:

1. You have maxed out your contributions to your tax-advantaged accounts

While term life insurance has no cash value, part of each premium payment for permanent life insurance goes toward building a cash value tax-deferred. You can borrow against or withdraw any of the accumulated cash. Your beneficiaries will get the face value of the policy when you die, or you could surrender the policy and take the money yourself.

2. You now have a lifelong dependent

Your needs have changed over the years, and now you have a child or other loved one with special needs. Permanent life insurance could help to fund a trust for that person after you are gone. Keep in mind that it’s always recommended to consult a professional to assist you in situations like this.

3. Permanent insurance will help you plan your estate

You’ve done well financially, and now you have accumulated money along with a sizable property. As a result, you’re concerned about the estate taxes your heirs will have to pay after you die. The proceeds from a permanent life insurance policy will help your heirs to pay those taxes.

4. You have developed health problems

When you convert a term life policy to permanent insurance, your insurance company doesn’t consider your current health condition. That’s a substantial advantage if you now have a condition that would make a new permanent life policy too expensive or impossible. If you are healthy right now, you can get a quote on a new permanent policy and compare it with a conversion.

Review your life insurance policy today while it's fresh in your mind

The rule of thumb is that you should be reviewing your insurance coverage every year. The chances are that you are among that majority who purchased a policy years ago and have taken the set-it-and-forget-it approach. More than likely, you’re overdue for a comprehensive review. Policy features might now be available that didn’t even exist when you purchased the coverage. Or maybe you’ve had several life events since then. Whatever the reason, a review and update of your policy will tell you if your plan is still suitable for your current needs.

Alliance America can help

Alliance America is an insurance and financial services company. Our financial professionals can assist you in maximizing your retirement resources and achieving your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling 888-864-2542 today.

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