2/13/2014 4:15 PM ET|
6 signs you should rethink your life insurance
Insurance policies often get forgotten, but it makes financial sense to check in occasionally to ensure your ever-changing needs are being met.
Out of the all the important things we do for our loved ones, taking out the right life insurance policy is probably one of the most important.
And once you get the right policy, you might be tempted to check that item off your to-do list and think: Whew. Now I don’t need to think about that again.
And in fact, most people don’t: According to “Life and Disability Insurance: What 20- and 30-Somethings Think,” a survey by LearnVest and The Guardian Life Insurance Company of America, almost eight in 10 people have never changed or even considered changing their life insurance policy.
But the reality is, our lives change, and our insurance policies should change as our circumstances do.
Do you know the signs that you might need to reevaluate your coverage? We’ve compiled a list of the top six reasons you should probably take another look at your policy to make sure it still works for you.
1. The number of people who depend on you has changed
Let’s say you’re married and have a policy with your spouse listed as a beneficiary. If you have children, you should consider adding them as contingent beneficiaries, which makes them the backup beneficiaries in case something happens to you and your spouse at the same time. You might also want to get coverage for a larger amount to, say, provide for the expected cost of their college educations.
This is not as simple as increasing coverage on the policy you already have—it might be cheaper for you to buy a separate policy for the additional amount. To decide which option is right for you, talk to your financial planner or an independent insurance agent who can compare rates from different companies. You can also compare rates online and determine which is the least expensive route.
On the flip side, if a dependent, such as a child, becomes self-sufficient—say, your youngest graduates from college and gets a job—or, God forbid, in the event a dependent on your plan passes away, you can lower the amount of your “death benefit,” which is the amount that would be paid out in the event of your death, or reevaluate how much insurance you need.
2. Your child becomes disabled
Some parents take out a term policy to be sure to provide for their children until they become self-sufficient. But if circumstances change, and a child becomes disabled, the parents may want instead to look into a permanent policy that will provide for the child no matter when you should pass away. The longest term policies typically last 30 years, so if you have a disabled child who is 10, and you’re only 45, you may want a permanent policy, because it will provide a benefit to him or her even if you pass away at 76 or later.
3. You’ve taken on significant debt, such as a mortgage or student loan
The original reason you might have taken out your life insurance policy was to provide for your dependents if you were to pass on. But debt that you take on can become their burden in the event of your death. For that reason, if you take out a mortgage or a student loan, you’ll want to consider whether you should increase your coverage accordingly. Follow the same strategy as above, in which you consult your financial planner or an independent insurance agent, or comparison shop online, to find out whether it makes more sense to purchase an additional policy or replace the existing one with a larger benefit.
4. You pay off your mortgage
Suppose you bought a home and took out a 30-year mortgage on it, and also purchased an accompanying 30-year term life insurance policy so your family would be able to pay off the debt if you died. However, after a number of years of diligently paying extra principal each month, you’ve paid off your mortgage in 18 years. Congratulations! The only thing is that you might now have an unnecessary life insurance policy. Consider the rest of your financial picture to see if there are other needs for life insurance—if you find none, you might want to cancel that policy or reduce the benefit amount and save the extra bucks.
5. You bought your policy before 2009
Why 2009? That was the year that insurance companies were required to switch to 2001 mortality tables. Before that, they were relying on mortality tables from 1980. While this is a rather morbid-sounding topic, it actually can have a big effect on the price of your policy. Here’s why: Between 1980 and 2001, mortality improved—and since people are living longer, they’re also paying into their insurance policies longer, and that delays the moment that the insurance company has to pay out.
The upshot? Monthly premiums are now lower as a result. Since you cannot renegotiate your existing policy, you should shop around to see if you can get a lower quote for the same policy. Even though you’re older now than when you bought your current policy, you might still get a cheaper rate with a new policy now. But always make sure that your new policy is in place before canceling the old one.
6. Your insurance company has been getting a lot of bad press
If you have doubts about the company holding your policy, investigate its stability. Find out whether the company’s financial rating by places like A.M.Best, Fitch or Moody’s has recently been downgraded (this can be done easily by doing a web search for the company’s name and the word “rating”). If so, consult a third party—not the insurance company itself, but either your financial planner or an independent insurance agency that sells policies from multiple insurers—to help you decide whether it’s time for you to switch policies.
If the rating hasn’t been downgraded, that probably means that while the company is enduring some bad publicity, its ability to pay cash out on your policy is not in question.
The information in this article is designed to be general in nature and for educational purposes only. It should never be used as an argument for the replacement of any life insurance policy. LearnVest and Guardian, it subsidiaries, agents or employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.
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Personally I think that life insurance is basically a scam aimed at taking your money and giving you pennies in return. My late father cashed in my mother's $5000.00 paid up life policy and bought Oxydental Petroleum shares. Now some twenty years hence when my father died that $3000.00 dollar investment which is what the policy was worth at the time netted my mother $33,000.00 instead of the paltry $5000.00 which was the face value of that life policy at maturity. In short the insurance company would have made all of the profit using my parent's money. That is a rip off in my book.
Mind you I have problems with the entire insurance industry as a whole. Auto, home owners, and life all tend to be big cash draws with very little given back in return even when needed. Every auto claim or home owner's claim that I have filed in nearly seventy years of living has been a fight just to get the minimum amount I had been promised. There is always some "small print" gottcha that limits the payout for my claims. This has not been with just one provider either. I have had close to a dozen different insurance companies over the years and they are all the same.
Just take a look around at all of the building projects that are going on and notice who is financing many of them. Around here it seems to be the big name brand insurance companies investing their policy holder's money to make huge profits only to pay back maybe one or two percent of those profits to the policy holder when the time comes. Nice racket if you can get it. LOL
Term life is the only way to go.
Insurance as an investment is a joke. The only who benefits is the agent who gets the commission.
Insure for a meaningful amount that is deliverable at death whenever that may be. At death a beneficiary will never ask what kind of policy is in force only how much will they receive. Is the risk short term, medium term or long term? Look at your wedding ring and ask how long will that be on your finger. Short term, medium term or long term and then apply for that length of time. In most cases long term is the period of coverage needed.
Don't be cheap and short change your loved ones who may live 30 or 40 years without you. If you won't care who will?
If whole life isn't your thing..and I get it you can get really cheap term.
If you have a wife husband or kids and you dont have some protection in place I think it is irresponsible. You can even compare term rates on a site like LifeAnt or others and pick the cheapest provider. Let's not feel like something is a scam just because a commission is pad people, there are commissions on car, health, home, mutual funds, brokerage accounts, cell phones, furniture, cars, ect ect, so again super silly argument.
Life insurance is money plain and simple. If our death triggers traumatic fears and tears then money may relieve some of the ache no matter what stage of life. Money serves a common need for security. We don't have enough security to last a life time. Love insurance is the solution. If you don't believe then you haven't lived long enough to experience lifes cruelty. The cost of learning first hand is more than many survivors can bear.
Life insurance is sold not bought because it's almost impossible to imagine being dead. It's one risk in life that guarantees one claim. Tell your agent when you'll die and he'll tell you how to save. Don't know? Then buy the time between now and then. That's the term needed. He'll know the price but the cost will not be known until we look back. Remember to walk in their shoes.
I disagree strongly with #2 above, Your child becomes disabled. I work with people who require special needs planning for their disabled children. If the child is left with a large sum of insurance money without setting it up through a proper trust, they've just screwed themselves out of social security and medicaid benefits.
Life insurance is okay if you are reciprocating with someone else.
You die, they collect. They die, you collect. Kind of like a lottery then.
I guess some here will say he was scammed. Imagine all the attorneys and financial types who had a role in getting this right. He knew what he wanted to accomplish and chose the most effective financial instrument available.
So many biases and so little knowledge by laymen who are challenged to balance a checking account register.
Hilarious. I was told, oh yes, you NEED life insurance.
Until I told them I had gone gestationally diabetic.
Then, suddenly, it seems, I didn't need life insurance anymore.
I understand there may be some life insurance policies that accept Diabetics, but you know what? I'll keep that money for myself now that automobile, house AND healthcare insurance are REQUIRED.
And, the automobile insurance & house insurance would probably drop us if we file a claim...and the Employer Negotiated Healthcare Insurance package we are forced to stay on because of the Good Fascist policies of Gov Scott Walker...is worthless for me or my spouse but in times of dire emergency.
I'll just do my best to keep myself healthy, without out any money wasting insurance policy to help me feel better if I die or something. What a country the USA lives in...victims of insurance companies everywhere....why do y'all think the foreclosures are allowed to continue? Of course, the banks get an insurance payment...why bother helping formerly perfectly good customers when they can be turned into deadbeats at a bank's whim...
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