What is the Status of Your Life Insurance Coverage?
When it comes to estate planning, we are strong proponents of the idea of regular review. The set it and forget method is a recipe for failure. As part of that regular review, we recommend that each year you should take the time to look at the different life insurance policies that you own to ensure that the policies continue to work in your favor. For example, you should ensure that the premiums you are paying are competitive, that your coverage reflects your current wants and needs, and that you know the cash value of your policies. Here is a checklist of items which should be reviewed each year.
Insurance Policy List. Make a complete list of your life insurance policies which includes: group plans, entity owned policies, trust owned policies and policies owned by other people (shareholders and/or employees).
Annual Reports. Gather each policy’s annual report which provides an annual summary of all policy transactions. For Universal Life and Variable Life carriers this will include records of premiums received and increases or decreases in cash values and death benefits. For Whole life carriers this will include records of past dividends and how they were applied to the policy. Also gather any related correspondence from the life insurance carriers and insurance agent.
Inforce Illustrations. Gather and review each policy’s inforce illustration which provides a picture of your insurance policy as it currently stands. Universal Life insurance policies show current premiums being paid and what happens to current and guaranteed values. You should find out the minimum premium to provide $1 of cash value at the insured’s age 100, at both current and guaranteed values. Whole Life insurance policies show the earliest possible year in which the policy premiums could be offset by dividends.
Policy Information. You should have written confirmations from providers with the following information: owner, beneficiary, cash value (accumulated and surrender), additional policy benefits/riders, loans/interest rates, modified endowment (MEC) status, approved underwriting class/rating, policy split language (divorce or tax law) change on survivorship (2nd to die) plans.
Life Insurance Trusts. Review life insurance trust documents such as: trustee(s) confirmations, Crummey letters, trust bank account statements, tax ID numbers, shareholder agreements, split dollar and collateral assignment documents, and gift tax returns.
Financial Position. Review your financial position and determine if any changes might impact the effectiveness of your life insurance policies. In particular, look for changes such as: marriage or divorce, additional family members, purchase of substantial assets, new expenses, and/or increased income.
Beneficiary Designations. Review the beneficiary designations for all of your life insurance policies. Having no designated beneficiaries or incorrect beneficiaries is among those most common mistakes when it comes to life insurance policies. Failure to designate the right individuals can dramatically impact the purpose and effectiveness of any life insurance policy.
Evaluation of Purpose and Costs; Improvements. Using all of this information, determine whether or not your policies are still working to achieve your goals and objectives. Compare your policies to others to ensure that each policy is competitive in cost, coverage and value. Also check to see if the term insurance costs can be lowered or if the period can be extended.
With the end of another year right around the corner, now is a great time to get with your agent and review your current life insurance policies and ensure they are still meeting your needs or if they can be improved.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.