Article
The objective of this article is to supply you with four thinking points to make informed decisions about whether to maintain, modify, or surrender your life insurance policy based on your evolving financial goals.
1. Check the stability of the insurance company who underwrote the policy to help ensure that your coverage remains in force.
Check the Company’s Financial Ratings:
Look for financial ratings from reputable rating agencies such as A.M. Best, Moody’s, Standard & Poor’s, and Fitch Ratings. These agencies assess the financial strength and stability of insurance companies. Higher ratings generally indicate a stronger and more stable company.
Visit State Insurance Department Websites:
Each U.S. state has an insurance department that regulates insurance companies operating within its jurisdiction. Check your state’s insurance department website for information on the company’s financial status, including any complaints or regulatory actions.
Research the Company’s History and Reputation:
Investigate the company’s history, including its years in business and any significant events or changes. Look for customer reviews and complaints online to gauge the company’s reputation for customer service and claims processing.
2. Request an in-force illustration.
An in-force illustration is a resource that provides a comprehensive snapshot of your existing life insurance policy’s current values, benefits, and performance. This information offers transparency into how your policy has performed over time, including the growth of the cash value (for permanent life insurance), premium payments, and death benefit.
In-force illustrations often include projections of future policy values, benefits, and premiums based on certain assumptions (e.g., future interest rates, policy expenses). These projections help policyholders anticipate how the policy may perform in the future. It shows the current premium payment schedule and whether there have been any changes or adjustments to premium amounts. In-force illustrations should be viewed as a tool that allows you to assess whether the policy aligns with your original goals and whether any adjustments or changes are needed.
3. Cost-benefit analysis of return on investment.
Analyzing the return on investment for life insurance policies can be complex because life insurance serves multiple purposes beyond traditional investment vehicles. The primary purpose of life insurance is to provide financial protection for your loved ones in case of your death, rather than generating investment gains. However, permanent policies do have a cash value component that can be considered an investment and should be when thinking about surrendering your policy.
Costs of life insurance policies: 1. Premiums – calculate the total amount you pay in premiums over the life of the policy 2. Policy fees and charges – be aware of administrative fees, rider charges, and other expenses associated with the policy 3. Opportunity cost – consider the opportunity of the money used for premiums, what could you have done with that money if it were invested elsewhere? Could you have made a better return?
Benefits of life insurance policies: 1. Death benefit – determine the potential payout your beneficiaries would receive if you were to pass away, is it worth the premiums you have paid in? 2. Tax advantages – some life insurance policies offer tax advantages,
4. Consult with your financial advisor for recommendations. Their expertise, objectivity, and ability to integrate insurance into your broader financial plan can help guide you to the decision that optimizes your overall financial well-being.
