If you are someone who makes investments, then you likely check your accounts annually at the very least. You might even check your monthly or quarterly statements. There are even people who will check their accounts on a weekly or even daily basis. When it comes to life insurance though, most people are lucky to remember how much insurance they have, or even which type of insurance they have. Some people haven’t taken a second look at their policy since it was purchased.
According to Brian Greenberg, founder of True Blue Life Insurance, “It’s important to review your policy when something major happens to you that could have an effect on your coverage – whether it affects the cost, the amount of coverage you need, or who will be your beneficiary.” At the very least you should check your policy every few years. Things that can affect your policy including losing weight, quitting smoking, and having speeding tickets struck from your record. These can affect how much you pay in premiums and so they are valid causes for reviewing the policy. Of course, there are also times when you could find yourself getting much more money than you would before by reviewing your policy.
I have two clients; both of whom are aged 75 and married. I sold them both a $150,000 universal life policy over 20 years ago. The policies were priced in the same manner as twenty-year term insurance with the first 20 years coming with a guaranteed premium. After this 20th year, the premium would increase significantly. The clients were comfortable with this because they planned on having coverage for only those 20 years, and letting the policies taper off after that period.
I recently called up the husband and, after wishing him a happy birthday, discussed their policies that were on the verge of lapsing. I was aware that his wife was living in a nursing home now following an Alzheimer’s diagnosis. He made it clear during our conversation that he wasn’t going to renew the policies and would just surrender them. I suggested to him that I could get an appraisal from a life settlement company, so that the policy of his wife could be sold rather than lapsing without value.
Ultimately, my client was able to sell that $150,000 life insurance policy for $65,000. Given that he would be getting nothing if the policy was to just lapse, he was ecstatic to be getting such a large amount of money. It would no doubt give him extra financial security during his retirement. These clients were also childless. If they had children they might have changed their minds, and it would certainly have changed my recommendations for them.
Most of the time it would be the right choice to keep your existing policy. That way your family will be able to benefit from the full death benefits. If you’re in a situation where you really don’t want to afford the premiums to keep your policy running, or you just feel that you no longer need life insurance, then you should at least consider what options you have. Give it some real thought and come to an informed decision about what to do next. In this situation, you can lose a lot of money through your ignorance. Imagine if the clients I discussed before had $1,500,000 in their policies. They would have been able to sell their policy for $650,000.
There isn’t any cash value to term insurance unfortunately. But, if you have a policy that comes with a conversion option, then you could still get value out of the policy with a life settlement transaction. A permanent policy will likely come with a cash surrender value as well as the death benefit. You should consider settling any permanent life insurance policy. This includes all forms of permanent life insurance such as whole life, universal life, variable universal life, and indexed universal life. If you have a permanent life policy then the only time you should consider selling the policy is if the money you get from selling the policy will be more than the current cash surrender value, otherwise you would just be down a lot of money.
A life settlement is typically a good idea if you are aged over 70 or you have a serious health issue. This is because having a shorter life expectancy will usually result in the life settlement transaction being worth more. There are requirements that a policy must meet in order to qualify for a life settlement transaction. This could be having more than a certain death benefit and being beyond the period of incontestability. How much your policy is worth in a life settlement is based on a range of factors. This is so that the annual premium needed to pay the rest of the policy based on assumptions and how much the policy is worth can be taken into account.
So, how much is your policy worth? If you fall under the criteria mentioned above, then you should understand the value of your policy before you make any decisions about what to do with it. If you don’t, then you could find yourself missing out on plenty of money.
