What about the cost of insurance fees? A few life insurance companies have chosen to increase the internal cost of insurance in these plans because lower interest rates have made the policies unprofitable. If you have lower interest rates and higher cost of insurance, this is a direct double impact on these in-force policies. If these older policies are not revised, they could expire early and not be there when customers need them.
3. Skipped and late premium payments
One of the most attractive aspects of a permanent life insurance policy is that it is designed to create cash value. The cash value helps offset the higher costs of life insurance as the client ages. The cash value can also be used as a supplement for later cash needs, retirement expenses, or college fundraising expenses – if the policy is structured correctly at the start.
However, cash value can also give customers a false sense of security when they notice the annual growth. Sometimes customers assume they can “skip” premiums or not pay the premium on time. When this happens, the future performance of the policy can be negatively affected.
A proper review of the insurance policy includes maintaining an in-force record with the original insurance company showing how the policy will operate for the duration of the contract. Without it, neither the client nor you, the financial advisor, have a real picture of how this policy will work over time.
Overlooking these key questions during a life insurance policy review can prove disastrous for the client as well as for the financial plan you present as an advisor.
When preparing a comprehensive financial plan for a client, life insurance – and reviewing any current coverage – is often an essential part of risk management. If your client dies prematurely, it can have resounding effects on their loved ones, their business, or their financial and estate planning strategy.
A properly structured life insurance policy should work as intended; therefore, proper reviews are an essential part of comprehensive planning and can prevent costly mistakes for your clients and their future.
Since 1988, John W. Felton IV, LUTCF, has served as an insurance consultant and case management specialist for wealth advisors, insurance professionals, and estate and tax planners. He has been president of the Tennessee Brokerage Agency since 1996 and was former president of NAIFA-Tennessee and NAIFA-Knoxville, former president of the National Association of Independent Life Brokerage Agencies (NAILBA), and former board member of LIFE Foundation and LifeMark Partners Inc. He can be reached at [email protected].