Are you hesitant when considering asking your clients about their current life insurance benefit plan? Or perhaps it’s not so much asking them about it, but the concern about having to gather too much information regarding their current plans to do a proper policy review. You may also hesitate because it will take time you don’t have, and you may not understand what they currently have.
What if I told you that most clients would welcome a review of their life insurance because they made the decision to purchase life insurance many years ago, put the policy in that pile with all their important papers, haven’t looked at it since, and really don’t know what they have.
There are two groups of policies that need to be reviewed in my perspective. The interest sensitive products that were written prior to 2000 because of the dramatic drop in interest rates, and term life insurance. You may ask “Why does term insurance need to be reviewed?” There are a great number of level premium term life insurance policy owners that firstly, don’t remember that they have term life insurance and secondly, may be nearing the end of their level premium period. For those of you that have been in the business a while, you may remember when level premium term first came into being. We saw the emergence of 5 and 10 year level term come about in the 1980s and the entrance of 15 and 20 year term in the 1990s; 20 year term being the most popular of the level premium periods.
Riding the wave
Again, for those of you that have been around for a while, something happened in the year 2000 when NAIC guideline XXX came about that changed the reserving requirement for term life insurance. We understood that this change in the reserving for these products would make the cost for term life insurance rise dramatically because of the increased cost to the insurance carriers. We in the brokerage business had a banner year in 1999 and 2000 because of this. So many clients purchased their level premium term prior to the anticipated increase in cost. The majority of these policies were 20 year level premium term, which are now coming to the end of their level premium period and need to be reviewed!
But they are not yet at the end of their level premium period
When is the best time to change from your current term plan? I have two thoughts on this. One, if you are considering permanent coverage, the answer is the sooner the better. The younger your client purchases permanent coverage the better cost they will have over their lifetime. Plus, may carriers may put limits on the conversion product they can take advantage of if they convert later.
What about level premium term? We have found that there are many policy owners that have a need for coverage and want to continue their plans but also understand (although many do not recall) that the cost of their term insurance will increase at the end of the level premium period. Although we would prefer they go with permanent plans, many still want term benefits because of the cost. So, let’s run some numbers to see when it may be advantageous for them to make the change to a new plan.
Let’s take a look at Jacob. He purchased a 20 year level premium term life insurance benefit plan when he was 35 and qualified for a Preferred non-tobacco rate classification. Jacob’s annual premium runs $347 for $500,000 of coverage. 17 years later a smart advisor asks Jacob, “When was the last time your life insurance was reviewed?” Jacobs states “Never!” So they look at some options, one of these being a new 20 year term. Provided Jacob is still a Preferred rate classification, his new annual cost would be $1,242. Wow, that is a big difference! Why should Jacob pay an extra $895 a year for three years when he could wait until the end of his level premium period?
If Jacob does decide to wait he has two things going against him. His age and health. Let’s just take his age into consideration. If he waits until the end of his level premium period, his annual cost would be $1,679; a $1,332 difference in cost over his current coverage. Certainly, he will save $3,996 now by waiting. However, he will pay an additional $8,740 over the 20 year level premium period if he waits another 3 years. Plus, if his health changes over the 3 years, his cost will be even higher!
Other reasons to do policy reviews
Every time there is a change in who depends on your client financially, it is a good time to review their life insurance policy whether it is term or permanent coverage. Here are more great reasons to review their coverage:
- They have had a baby
- They have gotten married
- They have gotten divorced
- Their children have finally become financially independent
- They bought a new home
- They need to change their beneficiary
- They have started their own business
- They are now caring for an elderly parent
- They have quit smoking or lost weight
Policy reviews are easier than you think!
Many BGA’s have the tools and resources in place to make policy reviews easy on you! No gathering of policies or statements, only a simple authorization is needed to get the information necessary to do a policy review.
Give your client a better understanding of what they have and how they can improve and preserve their life benefit plan while you expand your markets, add value to your business and save time. We can help! So, if you would like to learn more, just give me a call.