A life insurance policy typically is taken out at a certain point in a person’s life to address a specific need. As the years go by, circumstances change. That’s why every life insurance policy should be evaluated periodically to identify weaknesses and maximize performance within the policy. Is your life insurance policy performing as well as it could be? Here are some factors that could be undermining your policy’s performance.
Every life insurance policy contains charges to help cover the insurance company’s expenses. When your insurance company originally issued your life insurance policy, they may have specified that these expense charges may increase in the future. If they have increased these charges, it means that larger deductions are coming out of your policy each year. These deductions could lead to the policy not performing as well as it was illustrated upon purchase and could even lead to the policy not lasting as long as you intended.
Life insurance policies increase in value due to the rate by which they accrue interest and/or dividends. When you originally purchased your policy, it may have been assumed that interest rates would remain as high as they were at the time or even increase. Instead, interest rates have remained at all-time lows and, therefore, your current premium payments might not be enough to keep the policy in force.
Mortality rates partially determine the cost of life insurance. Due to medical advances, people are living longer than ever and recovering from illnesses that previously would have been fatal. Longer life spans have had a significant impact on the cost of life insurance. If you purchased your life insurance prior to some of the most recent significant medical advances, you could be paying higher premiums than needed. Reviewing your life insurance policy will determine if you could receive the same death benefit for lower premium payments or even a greater death benefit without changing your current payment.
Over the years, insurance companies have changed, as well. Market changes have impacted even some of the largest, most well-known insurance companies. Some companies have merged while others have sold their policies to other companies. Comdex is a system that evaluates and ranks the strength of Insurance companies in the insurance market. A Comdex ranking is a composite score of an insurance company’s ratings from the major insurance rating organizations, including Moody’s, A.M. Best, S&P and Fitch. It is important periodically to assess the ratings of the company that currently holds your life insurance policy.
Lastly, it is important to review the original reason the policy was purchased. Is that need still relevant today? As we journey through life, our needs change over time. It is important to make sure the policy stays relevant to the financial plan and to make necessary adjustments along the way.
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