Life Insurance Awareness Month
September is Life Insurance Awareness Month. What does that exactly mean? Most Life Insurance Awareness Month Campaigns tend to focus on that American’s are underinsured. That is true. According to a 2020 LIMRA study, only 54% of Americans have life insurance, and 27% have group life insurance that is not portable through their work. Focusing on the underinsured is important, but it is only part of the Life Insurance Awareness Month conversation.
Many people buy life insurance and put the policy away, and forget about it. The policy was purchased online, or the agent does not proactively review the coverage. Life changes fast, and protection needs from five or ten years ago might have changed. Is that policy that was purchased still the right one? Is there an opportunity to improve existing coverage? Is the policy performing as purchased? These are the questions that are important to be included in the Life Insurance Awareness conversation.
Life changes like marriages, divorces, the birth of children or grandchildren, income changes, wealth accumulation, and or death are all factors that determine the amount of life insurance that a person should have. There is a good chance that the policy purchased five or ten years ago is not providing the correct amount of coverage or for the correct period. Are the current beneficiary designations still relevant due to life changes since the policy was taken out?
The age, smoker status, and rate class are the three factors that determine the premium amount. The three factors can and do change over time. Unfortunately, age only increases, and that does drive up premiums. However, people who were smokers and are not anymore can apply for a smoker change on permanent policies or can be underwritten for a new term policy. People who lose weight, lower blood pressure, and cholesterol can re-apply for an improved rate class. Even people who were issued at substandard rates due to a more serious medical impairment can possibly obtain a better rating. Smoker status and rate class improvements can result in lower premiums. Also, people who are now uninsurable who have term coverage that will and need permanent coverage can convert to a permanent policy if the policy allows.
It is critical for policy owners of permanent life insurance to review the policy performance annually. Whole Life policies have a guaranteed cash value and fixed premiums. However, the dividends earned are often projected to pay future premiums or to increase coverage. Whole Life policy dividends are a return of excess premiums. The amount of these dividends or return of excess premium are calculated based on three factors. 1. The insurance companies’ mortality experience or how much in death claims have they paid out. 2. The insurance companies’ investment experience in their general account. 3. How well did the insurance company manage its operating expenses. A policy review with an in-force ledger with an updated projection of potential future dividends will show how the policy is performing.
Fixed and Variable Universal Life policies all have an account value, and the cost of insurance and other policy charges are deducted from the account value. The account value grows by premiums paid, interest earned for fixed UL policies, and investment returns on variable UL policies. The period that premiums are to be paid is determined by the performance of the policy account value. A policy review with an in-force ledger with an updated projection will show how the policy is performing.
You can see why the Life Insurance Awareness Month conversation must include the review of existing coverage. Putting the policy away and forgetting about it can create a situation where coverage no longer meets the policy owner’s needs. The policy owner could be paying too much or have poorly performing coverage.
Variable Universal Life Insurance policies are subject to substantial fees and charges. Policy values will fluctuate and are subject to market risk and to possible loss of principal. Guarantees are based on the claims-paying ability of the issuer.
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