Life insurance can be a crucial tool for:
- Tax planning
- Spousal protection planning
- Wealth transfer planning, and
- Business planning
However, as your personal and financial situation changes over time, so could your need for coverage. It is important that you know all your options regarding your life insurance, as well as when to audit your life insurance, so you can make informed decisions as to how to handle this valuable asset. You may have just one policy, or several life insurance contracts of varying types and designs.
Let’s discuss your life insurance options.
Life Insurance Options
Below are the four primary options available regarding your life insurance.
Option #1: Continue Your Coverage
If you still need life insurance to meet your planning goals or if your health has deteriorated, you may wish to retain your coverage. Some policies allow for premium flexibility and reduction in policy size.
Option #2: Stop Paying Premiums and Let Your Coverage Lapse
Seniors over the age of 65 lapse over $100 billion of life insurance coverage every year. Your premiums will end but so will your life insurance coverage when it eventually lapses.
Option #3: Surrender Your Policy
You can surrender your policy to the insurer and cancel your coverage in exchange for the cash surrender value (permanent policies only).
Option #4: Sell Your Policy via a Life Settlement
If your permanent (whole, universal, index, or variable life) policy qualifies, you can sell it to an investor group who will pay you an amount in excess—sometimes four to five times—of the cash surrender value, in exchange for paying future premiums and eventually collecting the death benefit. Some convertible term policies can also qualify so it could be worthwhile checking before you let it lapse.
Make sure you fully understand the potential tax consequences of lapsing, surrendering, or selling your life insurance policy before moving ahead.
The Importance of Auditing Your Life Insurance Policy
In addition to knowing your options, it’s just as important to regularly audit your life insurance coverage.
Why? Taking the time to review and understand your existing policies can help you:
- Reduce carrier and contract risk
- Check that you are carrying the right amount and type of coverage
- Ensure the policies are owned by the correct person or entity
- Consider new policy features, such as critical illness coverage, and
- Improve overall policy earnings over time
Remember, over the years, life insurance contracts have changed, become more efficient, and regularly offer different features and benefits. Today’s policies are different even compared to those purchased just a few years ago.
This considered it makes sense for every policy owner to periodically take a look at their existing life insurance contracts and make adjustments accordingly.
Let’s Develop a Plan – Together
Knowing your options is key. At Acumen Insurance Solutions, our trusted advisors have decades of experience to help you develop a customized plan. Please contact us for a complimentary policy review so we can help you reach your goals.
Interested in learning more? Read on for more about auditing existing life insurance plans for credit unions or the difference between term life insurance and permanent life insurance.