Life insurance has changed a lot in the last decade

The economic conditions of the last few years have made it prudent to review all of your financial instruments. Low interest rates and a volatile equity market have negatively affected some portfolios. This has caused some to revisit and even rethink their investment strategies and goals. Recent low interest rates have sparked an unprecedented rise in home mortgage refinancing, with some homeowners refinancing their home mortgages multiple times, each time gaining an economic advantage.

The historic low fixed interest rates and equity market volatility that we have experienced can drastically affect the underlying cash value in a permanent life insurance policy. The cash value, depending on policy type, is invested primarily either in fixed instruments, such as mortgages and bonds, or stocks.

The life insurance industry has undergone many changes in the last decade. As the average lifespan increases, the cost of life insurance coverage comes down. New, more efficient policies are introduced to the marketplace as the marketplace adjusts to a more competitive environment brought on by mergers and demutualization within the industry, and increased customer sophistication. The consumer simply demands greater value and the marketplace adjusts. Recent events in the capital markets have only served to complicate matters and have made the need to review current life policies with an independent insurance planner all the more critical.

The process of a life insurance review should result in providing you with the vital information that you need to evaluate your present life insurance policy and provide an analysis of the options that you may have in policy funding and positioning in order to help maximize the benefit of your life insurance coverage. Typically, these will include raising or lowering premium levels or altering the goals in the policy. This can be accomplished usually by raising or lowering the death benefit.

An example of where it paid to have life insurance policies evaluated:

Case: Results After Full Review:

• A 50-year old female had four whole life policies with a total combined coverage of $265,000. The net cash value was $79,000 with an ongoing annual premium to age 65 of $2,500 per year on two of the four policies. • Four policies were reduced to one.

• $55,000 of the cash value was used as a single premium on the new policy with a death benefit of $266,000 guaranteed to age 120.

• $24,000 in cash value was taken out free of federal income tax.

• No additional premium was required resulting in $37,500 in premium savings over 15 years compared to the previous insurance program.

When seeking out an insurance professional to review your policies, remember that independent planners represent a large percentage of life insurance companies, as opposed to being an agent for one large company. Choosing an independent planner can allow for an objective review and options which are representative of the industry. Ensure that the person explains your current policy terms clearly and also if there are any negative implications in replacing your current policy if this is the route suggested.

This is the opinion of Theresa A. Cavalier, a licensed independent insurance planner with Thorp & Trainer Insurance of Westerly, R.I. She can be reached at 401.596.0146 or tcavalier@thorptrainer.com

 

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