It’s easy to get excited when reviewing your finances. Checking the performance of your portfolio or looking at your bank statements can often feel like looking at scores for your favorite sports team. Being able to see your numbers go up is something worth rooting for.
But reviewing insurance policies rarely carries with it that same level of excitement—even though it’s just as important. Regularly thinking about and reviewing your insurance policies is the only way to make sure that you and your loved ones are adequately protected in case anything happens to you.
Here are a few types of insurance policies—and some considerations with each—that you should review on a yearly basis.
Remember what your goal was when you first purchased your life insurance policy, as this likely dictated how much coverage and what type of policy (permanent vs. term) you bought. At that time in your life, your decision was likely based more on the need to cover loss of income for your family (but even if you’re single, there are still some valid reasons to get life insurance). That specific need decreases as you approach retirement, but there are still valid uses for life insurance. For example, an irrevocable life insurance trust (ILIT) may be useful as a method to transfer assets to your loved ones in a tax-efficient manner, as well as provide an avenue to finance the fees involved with settling your estate.
But even beyond determining the type of policy and coverage you should have (or maybe even switch to—more on that later), there are benefits to reevaluating your life insurance policy annually. For instance, taking steps to improve your health could result in lower premiums. Someone who quits smoking or loses weight can request a new underwriting exam after 12 months. An insurance examiner will come out to your home to verify the changes in your health and complete the full exam again. You may be assigned a better rating, which could translate to lower premiums.
Many people get disability coverage through their employer. Typically, these group policies limit benefits to 50–60% of your salary and often carry a maximum monthly cap. Major life events—such as the birth of a child or moving into a new home—could significantly increase your monthly expenses and leave you underinsured if something happens and you can no longer work. Review how much coverage you can actually count on from your employer’s disability insurance. If you feel underinsured, consider purchasing a policy on your own to supplement your current coverage.
Long-Term Care (LTC) Insurance
The good news is that you bought a policy and it is a contract of benefits. The bad news is that the premiums may have gone up. In order to limit a possible increase on your long-term care insurance policy, see if you can reduce the rate your policy adjusts for inflation annually.
A second option may be to continue paying your current premium, leading to a reduced amount of total benefits. If you currently have a policy that offers lifetime benefits, consider switching to a policy that covers you for a set amount of time. Before you make that decision, it’s important for you to know what type of coverage you have. Does it include in-home health care? What about assisted living and/or nursing homes? You’ll want to be sure your policy still meets your projected needs.
It might also be possible for you to switch life insurance policies to a newer, more efficient policy that also has LTC benefits. You might be able to transfer the cash value of an existing policy into a product that has life insurance and LTC benefits without any tax consequences by doing what’s called a 1035 exchange. It works just like traditional LTC coverage in that you still have to fulfill a 90-day elimination, and you still have to qualify for it, but when it kicks in, you’ll be able to cover your LTC expenses with this new product.
Regardless of the type of policies you have, it’s important to review them regularly to make sure you’re as protected as well as you think you are. And if you have questions or are unsure of what you need in a policy, reach out to a financial advisor or insurance professional, as they can give you the advice and expertise you need. After all, insurance is there to protect your most important asset: yourself.
The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual.
This article contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, please contact your insurance agent. State insurance laws and insurance underwriting rules may affect available coverage and costs. Guarantees are based on the claims paying ability of the issuing company.
CFP® Al joined Wealth Enhancement Group in 2019 as part of the partnership with Summit Planning Group, where he was a founding partner. With more than 30 years of experience in the industry, he specializes in retirement distribution planning and supporting clients as they navigate major life-changing events. His passion for giving back to the community has led him to participate in a number of area boards and committees, including for his church, where he leads multiple bible studies. Al...Read More