I often get calls from people who have life insurance policies that they or their parents bought a number of years ago. They often don’t understand what they have and don’t know who to turn to for advice as to the policy’s suitability or value. In many cases they don’t know the person it was bought from or even if the policy is still in force.
Many people, after moving a few times have lost track of their insurance policies, which is unfortunate considering a life insurance policy is an important legal contract and should be stored in a secure place.
When reviewing existing coverage, several questions need to be answered to determine if these policies are still suitable for current risk management needs.
- What were the reasons for purchasing the coverage at the time?
- Has your health changed since you bought that policy?
- Has your occupation or employment changed?
- Have you incorporated?
- Has your family grown? If so do the new children need coverage?
- Are the existing beneficiaries ones that you still want?
- Are your wills, personal directives and powers of attorney up to date?
- If you have got divorced have you changed your beneficiaries?
- Do you feel that the coverage you have is adequate for today’s needs?
- Do you have critical illness, disability or long term care coverage?
- Has your financial situation changed, such as having taken on more debt?
- Have you purchased more coverage recently and why?
- Do you have any personally owned coverage or just group and bank plans?
And so the list goes on. The reality is, people buy coverage based on the need at that time then tend to forget about it. So that $250,000 10-year term policy they bought 15 years ago, may now be more expensive than the cost of replacing it with a new 20-year term plan.
In my 18 years as an advisor, I’m seeing that term insurance keeps getting cheaper and permanent plans more expensive. Term insurance is cheaper because people are living longer, so there is less mortality risk. Permanent insurance is more expensive because of the low returns of today’s long term bonds, and regulators are requiring significantly greater reserves.
Many Canadians are woefully underinsured, and under protected of the consequences if there was a death, begging the need for an insurance review. In many cases people pay more to insure their $40,000 vehicle than it would cost to have a million dollars of term life insurance each.
Many rely on the wide range of creditor plans offered by banks, car dealers and other retail outlets, not realizing the potential risks involved when the underwriting is done at the time of death. While convenient and quick to apply for, they don’t get a policy, don’t own the coverage and the policy usually only covers the outstanding loan balance. Bank mortgage and other creditor life coverage usually pay out on the first death, leaving one’s partner or spouse without coverage.
Take the time to consult with a trusted life licensed professional to do a review of any existing policies as to their suitability for your current needs.
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