In light of the impending changes, you may want to also re-evaluate your own coverage – and soon, as rates are expected to rise in the near term. One way you may want to manage your future premiums is by converting from term life to permanent coverage. We emphasize "may" because the most important component in the mix isn't the timing of government regulations or insurance company actions. Any changes you make should first and foremost be driven by your personal circumstances.
Here are seven questions to help you evaluate whether now may be a good time to alter your current life insurance elections, including whether it might make sense to convert from term to "perm".
1. Is it time to reassess coverage amounts under your current life insurance policy?
Your coverage needs constantly evolve with your life's natural progression. For example, maybe you're in a better financial position today than when you purchased your policy. Maybe your mortgage is now paid off and the children are out of the house. It's a good idea to periodically review your insurance options along with your financial plan, and keep both of them current.
2. Are you nearing retirement?
Upon reviewing your financial plan with your advisor, an inevitable word that comes up is TAXES. To be proactive, and to potentially ease your estate taxes, you might consider purchasing a permanent insurance policy to be paid off after ten payments. With a ten-pay plan, you should not have to worry about additional cash flow during retirement to keep the policy in force.
3. Is your term life insurance product approaching its renewal date?
Even if your current term life insurance policy is still a few years away from expiring, it may be worth obtaining a permanent life insurance quote at this time. With the new laws looming, term insurance premiums might double if not triple when they come due for renewal, whereas you may be able to lock in more favorable rates with a permanent policy … if you act soon.
4. What additional investment tools might you wish to take advantage of?
There are many investment opportunities available in a permanent life insurance policy. For example, you may seek a personally directed investment portfolio within a universal life insurance policy, or predetermined investment selections within a whole life insurance policy. Which product will be best suited for your individual needs depends on your financial goals as well as the nature of the investments themselves. Suffice it to say that some of the underlying investment selections are considerably more advisable than others.
5. Has your medical situation deteriorated since you initiated your life insurance policy?
In the new climate, if you've been diagnosed with even relatively minor health issues, your rates may skyrocket upon reapplication or, worse yet, you may be deemed uninsurable. As such, this is one of the largest benefits to already having term insurance in place as part of your greater financial plan. An existing policy may afford you the opportunity to convert all or part of your term insurance death benefit to a permanent insurance option, without requiring evidence of insurability. In this scenario, the sooner you secure permanent life insurance, the better.
6. How old are you?
Different insurance policies have a maximum age for converting current policies or applying for new ones. It is important to keep apprised of industry changes and to know what the age limits are, so that you can plan accordingly.
7. Do you have life insurance through your employer or group benefits?
Most people assume that their employer or group life insurance benefits will continue after retirement. Unfortunately, that is not always the case. Coverage may vary widely once you retire. Even if benefits continue, the coverage may decrease, and/or the payment schedule may increase. You may have conversion options through your current benefits; however, the associated costs may not always be your best bet. Again, careful planning is advised.
These seven questions introduce some of the most important details to be thinking through as the life insurance industry continues to evolve. How might the changes impact your own financial independence, risk management and estate-planning goals? These questions are best addressed in tandem with an advisor who can help you organize your life's many moving parts into a happy whole.
Carmen Cudmore
Insurance Advisor
Assante Estate and Insurance Services Inc.
We are well on our way to ushering in a new era in the insurance industry. After leaving life insurance tax laws largely untouched since 1982, the government has passed new rules to take effect on January 1, 2017. The changes are expected to reduce tax-favorable opportunities available to policy holders. Not surprisingly, insurance companies are busy re-evaluating their premiums and options as we speak.
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