3 Things Advisors Overlook When Reviewing Clients' Life Insurance Policies
What about the cost of insurance charges? A few life insurance companies have chosen to raise the internal cost of insurance in these plans, because the lower interest rates have made the policies unprofitable. If you have lower interest rates and higher cost of insurance, this is a direct double hit on these in-force policies. If these older policies are not being reviewed, they could lapse early and not be there when clients need them.
3. Skipped and Late Premium Payments
One of the most attractive aspects of a permanent life insurance policy is that they are designed to build cash value. The cash value helps offset the higher costs of life insurance as a client gets older. The cash value can also serve as a supplement for later cash flow needs, retirement expenses or college funding expenses — if the policy is structured correctly in the beginning.
The cash value, however, can also give clients a false sense of security when they notice the annual growth. At times, clients assume that they can “skip” premiums or not pay the premium on time. When that happens, the future performance of the policy can be negatively affected.
A proper insurance policy review includes running a current in-force ledger from the original insurance carrier showing how the policy will perform for the life of the contract. Without this, neither the client nor you, the financial advisor, has a real picture of how this policy will function over time.
Overlooking these key issues during a life insurance policy review can prove disastrous for the client as well as the financial plan you are setting forth as their advisor.
When preparing a complete financial plan for a client, life insurance — and the review of any current coverage — is often an essential part of risk management. If your client dies prematurely, this can have resounding effects for their loved ones, their business, or their financial and estate planning strategy.
A correctly structured life insurance policy needs to perform 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 planning specialists. He has been the president of Tennessee Brokerage Agency since 1996 and has served as past president of NAIFA-Tennessee and NAIFA-Knoxville, past chairman 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].
