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My Life Insurance Policy Review

How-To Guide and Tips for Policyholders

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Does Your Life Insurance Policy Need To Be Reviewed?

For most people, life is not static. It brings many changes, and as it evolves, so does the purpose, goal, and most likely the amount and length of a life insurance policy. Occasionally reviewing your life insurance policy is essential to ensure it still matches your insurance needs.

When Should You Review Your Life Insurance Policy?

How long ago you bought life insurance, why you bought life insurance, and what financial and lifestyle changes have you made will determine when you should review your policy. Here are common coverage-changing scenarios to help you decide.

Life Insurance After Buying a Home

Did you purchase or refinance a home, or vacation property?

If you bought a life insurance policy before buying a home, now is a great time to review your policy to ensure your coverage is still adequate. Whether it’s just you and your spouse, you and your family, or just you, term life insurance is essential if you have a mortgage.

If you purchase a second home, whether as a winter getaway or for rental purposes, this is another situation in which you may need more life insurance coverage.

Unless your loved ones are in a position to simply sell your home to pay off your mortgage, additional life insurance coverage is necessary to protect them financially.

Life Insurance When You Have Debt

Has your debt amount increased?

Americans have developed, out of necessity, an increased comfort level with holding debt. Individuals are now borrowing more over a lifetime in the form of:

  • Student loans
  • Auto loans
  • Credit cards
  • Mortgages
  • Home equity loans
  • Home equity lines of credit
  • Reverse mortgages

Because of the increased spending, people are leaving behind large amounts of debt to their loved ones when they die unexpectedly. If you’ve opened up a new line of credit or have taken out a large loan, review your term life insurance policy to ensure your coverage is still adequate.

Life Insurance and Income Levels

Did you or your spouse’s income and/or benefits change significantly?

Term life insurance is primarily used as income replacement if a provider dies unexpectedly. If you or your spouse get a significant promotion or another source of income, you may need more coverage.

Higher incomes may mean a lifestyle change. If you died, more life insurance coverage may be essential to ensure your family can maintain the same standard of living.

Life Insurance When Changing Jobs

Have you or your spouse changed jobs?

If you or your spouse changed jobs, this may also mean that your employee benefits changed. If you had group life insurance coverage at your prior job, does your new job also offer this?

If not, you may want to look into purchasing more coverage if you bought your current life insurance policy with the thought that you would also have group coverage.

Life Insurance for Married Couples

Should husband and wife both have life insurance?

Both spouses contribute to a household so both need to have an individual life insurance policy. If one spouse died unexpectedly, the surviving spouse would likely feel financial struggle if there was no life insurance.

A stay-at-home spouse should also have life insurance, especially if the couple has children. A stay-at-home spouse provides many services normally one would have to pay for, childcare being the biggest expense.

Life Insurance and Divorce

How does life insurance work during and after a divorce?

During divorce proceedings, it’s not uncommon for a court to require the life insurance policies be left untouched. For example, neither spouse would be allowed to change beneficiaries or access cash value.

In some cases, life insurance may be a requirement if child support or alimony is part of the divorce settlement. If no restrictions are placed on the life insurance policies after the divorce settlement is complete, the ex-spouses are free to change beneficiaries.

It’s important to review life insurance policies after a divorce. If you forget to update the beneficiary and you die, the death benefit will go to your ex-spouse, even if you’ve remarried.

Life Insurance When You're a Parent

Life insurance for new babies/children

Life insurance can be purchased on minor children in two ways: a small whole life insurance policy or with a term rider.

A small whole life insurance policy guarantees your child’s future insurability and accumulates cash value. If desired, ownership can also be transferred to the child once he or she is an adult.

A child rider can be added on to a term life insurance policy when purchased by a parent. A child rider provides a small amount of life insurance coverage on all your minor children for a nominal fee, typically $50 per year for $10,000 of coverage.

A child rider also guarantees the child’s future insurability. The rider can be converted into a permanent life insurance policy no matter the health of your child, as long as it is converted within the conversion period. If not converted, the child rider coverage drops when the child reaches a certain age, typically 23-25 years old.

When you start or plan to start a family

If you want to be a parent or recently became one, take a look at your current life insurance policy. Is the current beneficiary the one who will be guardian of your children if you were to die unexpectedly? If not, update the beneficiaries.

Is your current coverage amount substantial enough to cover the costs of raising children? If not, you may want to look into buying another policy. Or buy a new policy altogether.

When children finish college

If your children graduate from college, are they returning home or moving on? Many college-aged kids are moving back in with their parents while they establish careers and start to pay off student loan debt. If your term life insurance policy is set to terminate soon, you may want to consider buying a new one until your children are financially independent.

Life Insurance When Your Health Changes

Has your health recently changed?

Have you been on a new health regime? If your health has significantly improved since you first purchased life insurance, it may be beneficial to re-apply. Quitting smoking, losing weight, and lowering your cholesterol or blood pressure, are just a few examples of when a health change can affect your rates for the better.

If your health has declined, you do not need to worry if you already have life insurance. If you have been paying your premiums and your policy is inforce, a negative change in your health will not affect your rates.

However, if you have a term life insurance policy and your life expectancy has significantly decreased, you may want to consider converting it into a permanent life insurance policy.

Has anyone in your family had serious health issues?

If anyone in your family developed a serious health condition that will require lifelong assistance (ex: disability or dementia), consider if you need to make a change to your life insurance portfolio.

If your policy’s beneficiary now receives disability or special needs government assistance, consider changing your beneficiary to protect their government benefits. For example, to qualify for Supplemental Security Income, a disabled adult child cannot have had more than $2,000 in their name in the last three years. Being a life insurance beneficiary would put them over the eligibility limit.

You may also need to rethink how long your life insurance coverage will last. If you’re now caring for someone who will need lifelong support, another term life insurance policy may be necessary or even a permanent life insurance policy to ensure the dependent will be provided for even if you die before them.

Life Insurance in Retirement

Are you still working in retirement?

Many people at retirement age will continue to work full or part time and will still have a need to replace income in the event of their death if they are supporting a spouse. Life insurance will replace the paychecks that no longer arrive.

If your spouse relies on your Social Security or retirement benefits, they may no longer be eligible to receive these funds if you pass away. The death benefit provided by life insurance can replace these lost benefits.

Updates to your estate, Will or Power of Attorney

If you create a will or replace your current one, review your life insurance policy to ensure both are set up to properly convey your wishes when you die. Keep in mind a life insurance policy trumps a will. For example, if you divorce and remarry and update your will to state “I want my assets to go to my current wife,” but you fail to update your life insurance policy beneficiary and your ex-spouse is still listed, the life insurance death benefit will go to your ex-spouse.

Received an inheritance

If you receive a large inheritance and no longer need your life insurance policy, you can cancel it without penalty if it’s a term life insurance policy. If you own a permanent life insurance policy, you may even be able to surrender it for the cash value if it’s been inforce long enough to accumulate.

If the inheritance is large enough that it may cause estate tax complications, work with your agent to determine if life insurance changes need to be made. For example, if you own your own life insurance policy and the beneficiary is not a spouse, you may want to consider transferring ownership so the value is not included in your taxable estate.

Life Insurance for Business Owners

Why small-business owners need life insurance (or life insurance for business owners)

Key employee insurance, collateral assignments, and buy-sell agreements are all common scenarios in which a business owner could benefit from life insurance. If you recently started a business or are starting to plan, a new life insurance policy may be essential.

Collateral Assignment:

Term life insurance can be used to help you secure startup or growth loans through collateral assignment. Collateral assignment secures a bank loan in case of the borrower’s death, using the face value of the policy.

Buy-Sell Agreements:

If you’re going into business with multiple partners, buy-sell agreements enable each owner to take out a term life insurance policy on their partner, equal to their respective shares of the business. The policy payout upon a partner’s death is used to assure the continuity of business operations during a leadership transition, as well as to make up for any loss of business value or revenues due to an owner’s untimely passing.

Insuring Key Employees:

Key person insurance policies name your business as the beneficiary should a vital employee pass away. This type of policy ensures that your business won’t be vulnerable to significant operational issues if you lose a valuable member of staff.

Family owned business

In many cases of family-owned businesses, not all the family members are interested in taking over management upon a parent’s death. For parents who are concerned about leaving behind equal inheritances, life insurance can be used to achieve these goals.

Changing Your Life Insurance Beneficiaries

How to change your beneficiary for your life insurance policy.

Changing the beneficiary on your life insurance policy is as simple as sending in a form to your insurance company. Policyowners can change beneficiaries at any time. The only time a policyowner can’t is if the beneficiary is irrevocable. In this case the policyowner would need the beneficiary’s permission before making changes.

How many life insurance beneficiaries can you have?

There are different types of beneficiaries: primary, secondary (contingent), and tertiary.

Your primary beneficiary is who the insurance company will pay your death benefit to first. If the primary beneficiary has died or cannot accept the benefit, then the contingent beneficiary is next in line to receive the death benefit, followed by the tertiary. You can name more than one primary beneficiary to receive the death benefit proceeds, but the distribution percentages need to add up to 100%.

What happens to life insurance without a designated beneficiary?

If you don’t list a beneficiary on your policy or if the beneficiary dies before you and you don’t name any back-up beneficiaries, then the death benefit proceeds revert back into your estate. The life insurance proceeds are then subject to probate and not only will your heirs not get access to it for quite some time, but your creditors gain access to it.

Needing More Life Insurance Coverage

If you currently own life insurance and need more, purchasing a new or an additional life insurance policy is common. For example, if you purchased a $250,000 life insurance policy after you got married and now ten years later have three children and decide you want $750,000 in coverage, you have two options: apply for a new $750,000 policy or apply for a second $500,000 policy. Depending on your age and health, one option may be better than the other.

Not sure how much term life insurance you need?

Understanding the legal fine print of your policy

When your term life insurance policy ends

Term life insurance lasts for a specific time, the term length. When this term is up the coverage terminates.

What options do I have when my term life insurance policy is about to expire?

Buy a new life insurance policy

You have the option to buy a new life insurance policy which could be either term or permanent. Because you’re now older, buying a shorter term policy such as 5 or 10 years might be the most affordable option.

It also may be wise to shop around versus going with the same insurance company you had previously. Even if the life insurance company you have now had the best prices when you first purchased, doesn’t mean they still do. Your health may have changed which can affect which company is best for you.

Convert your term policy into a permanent policy

Most term life insurance policies have a conversion option. This allows you to convert all or a portion of your policy into a permanent one regardless of your health.

Because your premiums will increase greatly, this option is really only beneficial if your life expectancy has seriously diminished since you first purchased your term policy.

Renew your term policy

Many insurance companies have renewability options on their term products. This means you can extend the coverage term without having to re-qualify. Because the renewability premiums increase drastically, this option is mainly only beneficial to those whose doctors have told them that they only have a few years left to live.

Common life insurance clauses and exclusions

There are many clauses included in a life insurance policy designed to protect both the policyowner and the insurance company. Three important ones to be aware of include:

Suicide Clause

This states that the insurance company has the right to not pay out on a policy if the insured commits suicide within a specified period, typically within two years from the start of coverage.

Grace Period Clause

Each policy has a grace period in which a policy will still remain active even if the premium is not paid. This period is typically 31 days. If the insured dies during the grace period, the death benefit will still be paid but the premium owed may be deducted. If the grace period ends and payment is still past due, the policy will be terminated.

Incontestability Clause

The insurance company has a specific amount of time, typically two years, to dispute the validity of statements made on an application. If it is found you misrepresented information on your application, the insurance company can cancel your coverage or deny a claim. After this time period is over, the company can no longer challenge statements made on the application and must pay out in the event of the insured’s death.

Why will my premiums increase at the end of a term policy?

As you age it’s not unusual to develop some sort of health issue, whether that’s high blood pressure, osteoporosis, or something much more serious such as cancer. An applicant’s mortality risk is what determines the cost of a life insurance policy. If your term policy is ending and you renew it, you’re paying increased premiums because the insurance company takes on higher risk to keep insuring you as you age.

What happens if I don’t pay my premiums on time?

Life insurance policies have grace periods. If you don’t pay on time you have typically 30 days to send in payment. If you still don’t pay, what happens next depends on the type of policy you have.

Some permanent policies have automatic payment options that will pay a due premium using your cash values or dividends. If you have a term policy and the grace period passes then your policy will terminate.

What happens if I don’t die while my term life insurance policy is inforce?

At the end of your term, the coverage will end and your payments to the insurance company are complete. The premiums you paid are forfeit unless you purchased Return of Premium term life insurance.

How to file a life insurance claim

Every life insurance company has hundreds of thousands of customers. There is no simple way of them automatically knowing if one of their insureds has died. This is one reason why it is so important for you to talk to your loved ones about your life insurance policy so they know it exists and can submit a claim when it’s time.

The claims process should only take a week or so to complete and the insurance company will mail out a check to the appropriate beneficiaries. You may run into longer turnaround times when filing a life insurance claim if the insured dies within the contestability period.

Here is a simple road map for filing a life insurance claim:

1

Contact your life insurance agent or the insurance company’s customer service department. If there is a group life insurance policy, contact the employer.

2

Obtain a copy of the official death certificate.

3

Complete a claim form from your insurance company.

4

Submit your claim paperwork, IRS forms, and the death certificate to the insurance company.

The death of a loved one can drain your energy quickly. Ask for help and accept it when it’s offered. Our Survivor’s Guide is a helpful resource if you are dealing with the loss of a loved one.

If you have questions or need further advice, contact us at any time or call customer support at (844) 786-8229 or text us at (612) 260-4575.

Here is a simple road map for filing a life insurance claim:

1

Contact your life insurance agent or the insurance company’s customer service department. If there is a group life insurance policy, contact the employer.

2

Obtain a copy of the official death certificate

3

Complete a claim form from your insurance company.

4

Submit your claim paperwork, IRS forms, and the death certificate to the insurance company.

The death of a loved one can drain your energy quickly. Ask for help and accept it when it’s offered. Our Survivor’s Guide is a helpful resource if you are dealing with the loss of a loved one.

If you have questions or need further advice, contact us at any time or call customer support at (844) 786-8229 or text us at (612) 260-4575.

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