News and Commentary

Why your Insurance Policies Need Regular Check-Ups By Scott Montgomery

Just as annual medical check-ups help you maintain proper health, regular insurance plan reviews can provide invaluable benefits. Evaluating current insurance policies once a year or every two years can help to ensure your policies keep up with your changing circumstances and may even result in re-rated and reduced premiums.

Too often, individuals purchase insurance policies, begin paying premiums and never think about those policies again. However, like life, insurance is dynamic.  Major life events, such as marriage, divorce, births of children and employment status, can affect individuals’ insurance needs and the intended uses of policy benefits.  The reasons for purchasing a policy today may not apply in the future, and benefits planned today may not be sufficient to meet one’s needs or the needs of their beneficiaries 10 years from now.

Permanent insurance

Permanent cash-value life insurance policies build cash value and subsequent death benefits during a policyholder’s lifetime. With a whole-life policy, the premiums are guaranteed for the entirety of the policyholder’s life. Conversely, premiums associated with a non-guaranteed universal life policy can vary during the insured’s lifetime, depending on the insurance company’s credited interest rate, mortality cost and company administrative expenses. As a result, individuals who purchased universal life policies in the early 2000s, when interest rates were hovering at 6 percent, will likely be subject to premium payment increases during their lifetimes. Similarly, premiums for universal life policies have the potential to decline throughout one’s lifetime, which would have been the case for individuals who purchased policies over the past few years when rates were at historic lows.

With these facts in mind, it is critical to continuously monitor your permanent life insurance policy to ensure the premiums you pay will provide the death benefit for which you initially planned. Under certain circumstances, you may need to consider policy changes or other supplemental investment vehicles.

Meet Evolving Business Needs

 Life insurance is also an effective succession planning tool that closely held businesses use to fund buy-sell agreements between their owners/shareholders. It works by each owner taking out a life insurance policy. Upon the death of one owner, insurance proceeds are passed to surviving owners, who then purchase the decedent’s interests in the business. Not only does this provide surviving owners with immediate liquidity to carry on their business operations, but it also assures them that the deceased owners’ interest will not pass to a third party with whom they wish to work. However, over the life of a business, succession plans may change, and the features and benefits of an original insurance policy may no longer apply in the future. It is not uncommon for owners to alter policies to meet new funding needs or to rely on alternative vehicles to supplement existing funding sources.

Reduce Rates

 One of the most overlooked aspects of regular insurance check-ups is a policyholder’s potential ability to reduce their premium payments. Mortality costs and interest rates change, as do the products and services offered by insurance companies competing for customers in a constantly evolving market. At times, you may qualify for a policy re-rate, or, depending upon your health, you may be able to move into a new policy with lower premiums. For example, if you are a smoker, have high blood pressure or another chronic health issue, it is likely your policy premiums will be high. However, if you take steps to improve and sustain these health issues over time, the insurance company may agree to a lower policy rate.

Policyholders also may be able to change their rates when their circumstances change. For example, you may have secured a life insurance policy to ensure your beneficiaries have ample money to remain in your family home or to cover the costs of a child’s college education after you pass away. However, you may reach a point when you no longer need these protective provisions, whether your child has graduated college or you have already paid off the mortgage on the family home. In these instances, you may wish to reduce the death benefit paid to heirs upon your death, thereby reducing the premiums you pay during your life.

Annual insurance policy check-ups should not be limited to life insurance. Instead, it behooves you to regularly review all policies you hold, including auto, home, disability and long-term care policies, to ensure they continue to meet your evolving needs and their rates remain competitive within the market.

About the Author: Scott Montgomery is a director and financial planner with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Ft. Lauderdale, Fla. office at (954) 712-8888 or info@provwealth.com.

Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, Fla. 33301 (954) 712-8888.

Scott Montgomery is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.

 This material is being provided for information purposes only and is not a complete description or a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove correct.

 Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult your financial advisor about your individual situation.

Life insurance and long-term care insurance policies have exclusions and/or limitations. The cost and availability of life insurance and long-term care insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with purchasing life insurance and long-term care insurance. Life insurance policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims-paying ability of the insurance company.

To learn more about Provenance Wealth Advisors financial planning services click here or contact us at info@provwealth.com

Posted on May 22, 2024