Life insurance is something most of us buy out of necessity, and once it’s taken care of we tend to forget about it. Many of us mistakenly believe that as long as we’re paying our premiums, life insurance policies never need to be revisited. As people go through various changes in life, however, their life insurance needs may change as well. It’s important that people review life insurance policies every 3 to 5 years. There are many reasons to have a life insurance audit. Let’s take a look at the most common ones and how they apply to your life insurance needs.
Changes in the Family – Even if your financial status has remained relatively stable over the years, your needs may have changed considerably. Everything from having children, to children leaving home, or caring for elderly parents, to divorce or the death of a spouse can affect your life insurance needs.
The Policy May Be at Risk – If the person you bought the initial policy from years earlier is no longer in the insurance business, it’s probably time to review the policy and see if any changes need to be made. Policies need to be structured and managed properly through the years so that they still meet the owner’s needs and expectations. People usually keep a close watch on their 401(k) and other investments, a life insurance policy should be regarded in the same way.
Changes in Financial Status – If your financial status has changed considerably, then it’s time to reevaluate your insurance policy. If you have stocks that have fluctuated in value, recently inherited a large sum, or filed bankruptcy, these are all major financial changes that would most likely require changes in your current policy.
Changes in Interest Rates – Interest rates are currently extremely low. A policy written ten or twenty years ago should be reviewed. If the policy assumed a certain earning rate, such as 10 percent, and now it’s earning much less, the policy may be at risk.
Changes in Personal Health – If your own personal health has changed dramatically in the past few years it would definitely be time to audit and update your current life insurance policy. If you’ve lost or gained a considerable amount of weight in recent years, have taken medication to successfully control a once serious health problem, or have quit smoking, these things can dramatically change your insurance needs.
Changes in Life Expectancy – As life expectancy changes, so do the Standard Ordinary Mortality Tables insurance companies use to decide rates. Basically, as people live longer, the costs for life insurance have gone down. Although it’s usually many years between the times companies adopt new mortality tables, it’s worth taking a look as the rates may have changed since your life insurance policy was initially purchased, especially if that was 20 or 30 years ago.
Changes in Medical Advancements – Medical improvements can bring insurance costs down. Various types of cancer and other diseases that used to be fatal may now have a higher survival rate, and thus insurance premiums have come down. Chronic diseases such as diabetes and high blood pressure are more easily managed and many insurance companies have adjusted their rates accordingly.
Legislative Changes That Affect Policies – State or Federal changes, such as new tax rules can affect your life insurance policies. Laws regarding life insurance policies can also affect Medicaid eligibility. If it’s possible you or a spouse may need nursing home care in the near future, it’s recommended that any current policies be audited.