How to Review your Life Insurance Policy

Buying a life insurance policy is often a once in a lifetime event, but reviewing your life insurance policy to make sure it continues to meet your needs should be done every year. It is an important part of financial planning for you and your dependents.

Whether you are an individual or a business owner, making sure you have the right level of cover at the right price and terms is important. And if you have an investment-linked life insurance policy, it becomes even more important to review the policy every year.

1. Have Your Circumstances Changed?

Since you took out your life insurance policy, have your needs changed? If so, is your current insurance policy still appropriate for your new circumstances?

The following events should prompt you to review your life insurance policy:

• Getting married
• Started a family
• Taken out a mortgage to buy a property
• Written a Will
• Getting divorced
• Started a business
• Taken on business loans
• Sold your business
• Planning to retire

Whatever your circumstances, a formal review can help you decide if you need to take out life insurance cover. Or if you need to increase or decrease your life cover. Or that you no longer need life cover at all and you can cancel your policy.

2. Has your Lifestyle Changed?

Changes to your lifestyle and health have significant effects on the cost of life insurance.

If your lifestyle has changed and you already have a policy, some insurers allow you to benefit from the changes you have made. Here are some examples:

• If you have stopped smoking since you took out the policy, you may qualify for lower premiums moving forward. Some insurers offer a quit smoking review which includes a short medical test. A reduced premium can apply to all future premiums if the test proves that you have stopped smoking.
• Some insurers will consider reducing premiums on your policy if you are no longer involved in higher-risk sports activities like rock climbing, offshore diving or hand gliding.

A review of your life policy’s terms and conditions to see if you can benefit from lower premiums could save you a significant amount of money for the rest of your life, not to mention, feeling better for the changes you have made to your lifestyle.

3. Can I Buy a Cheaper Life Insurance Policy?

The cost of buying life insurance has come down in recent years and there are several reasons for this:

• People are living longer.
• More advanced medical testing techniques can help life insurers more accurately price your premium which can, in many circumstances, be lower than historical pricing of policies.
• Better and more accurate medical diagnosis means people can take appropriate medication to help them stay healthy and less prone to serious conditions. For example, the advances made in diagnosing and treating diabetes.
• Intense competition and better actuarial analytics in the life insurance market continues to drive down premiums leading to lower costs for buyers of life policies.

Given these changes it may be possible to take advantage of lower insurance premiums and buy a cheaper policy, potentially saving you money. It is often easy to base your decision to switch life insurance provider based on cost. But it is important you don’t base your decision to switch on cost alone.

4. Is your Life Insurance Policy Still Good for Your Circumstances?

Life insurance products have developed significantly over the last decade with more and more variations available to meet different client needs.

Term insurance and permanent insurance remain the two main types of life insurance cover available, but new variations of each type of policy have been launched. For example, index universal life insurance is a relatively new permanent life insurance solution, which could offer better investment returns in a more competitive and transparent product.

A review of your life insurance cover may result in you deciding to switch your policy and also switch insurer. However, questions to consider before changing your life insurance policy include:

• Apart from the life cover the policy provides, does the existing policy have any other features and benefits that are useful now, or in the future? For example, a no-lapse guarantee.
• Are there any surrender charges applied to the existing policy? If so, how much will it cost to cancel the policy?

Capital for Life recommends a suitably qualified financial adviser or life insurance broker assists you with making an assessment of your existing life insurance policy versus a new life insurance policy to ensure all aspects are covered.

5. Why you Should Review Investment Performance of your Life Insurance Policy

Sustained low interest rates have affected cash returns and bond yields.

Significant gains have been made in most major developed country stock markets in recent years. But low or negative returns in many emerging market equity and bond markets means there is a lot for policyholders to consider if they have an investment-linked insurance policy.

Regularly reviewing the performance of your insurance policy to ensure it’s still on track to pay out the sum assured is important.

A formal review of the investment performance of the underlying insurance policy should take place every with a number of significant factors impacting insurance policy investment returns including:

• Investment fund performance – how has each fund performed against its benchmark?
• Fund choice – are there better funds available that can be selected to potentially enhance performance?
• Review of the asset allocation in the policy to ensure it remains appropriate for the policy’s investment objectives and market conditions.
• If performance has been good, do you need to take profits and re-allocate those profits across your existing funds or new ones?
• And finally, costs and charges. How much are you actually paying the investment managers and the life insurance company to manage your money? Is the projected growth rate AFTER charges realistic?

A review of life policy investment performance could reveal a number of changes that you might want to make to your policy. These could include switching your investment funds and your underlying asset allocation to better suit your needs and market conditions.

If investment performance of your life insurance policy has been poor, you may need to consider topping up the policy with further cash payment as a premium to preserve the benefits and maintain the level of life cover you need.

If in doubt, always get a second opinion from a qualified financial planner or life insurance broker, and preferably from a different company to the one that sold you the policy.

6. Are the Beneficiaries of your Life Insurance Policy Still Correct?

When you first bought your life policy, you will probably have put the policy in trust and named your beneficiaries. It is always important to review your beneficiaries as part of your overall financial plan and make changes if needed.

Circumstances when you should review your beneficiaries include: 

• Marriage
• Death of a spouse or civil partner
• Divorce
• Birth of children and grandchildren
• Marriage of children
• Sale of a business
• A large inheritance or a lottery win

Some of the key questions to consider and work through with your family, trustee or financial adviser include:

• Who are your named beneficiaries?
• Are your primary beneficiaries still the people you would like to benefit from your life policy?
• Are the contingent beneficiaries of your policy still appropriate?
• Are there any tax considerations that need to be taken into account? For example, treatment of the life policy payout in each of your beneficiaries country of residence.

Whilst many life insurance companies provide an 'off the shelf' trust for you to buy and hold your policy in, Capital for Life recommends you always consider taking advice from a trust company when your affairs are more complicated and a bespoke solution needed.

7. Is your Life Insurance Company still Financially Strong?

As part of your review of your life insurance policy, you should also check to make sure your policy is with a life insurance company that is financially strong.

Selecting a life insurance company should involve an assessment of its financial strength because you are entering into a long term obligation with the insurer to pay out a sum of money, hopefully, many years in the future.

A specialist life insurance adviser will be able to find the financial strength rating of your current insurer as measured by a range of rating agencies like Standard & Poor’s, Fitch and Moody’s. Having a strong and stable capital base is a good measure of financial strength and will enable an insurer to not only sustain its strong credit rating but also grow its business. Most importantly it will be in a good position to pay out on its commitments to your beneficiaries who will receive the proceeds of your life insurance policy.

Conclusion

In summary, it is important to regularly review your life insurance policy to ensure it continues to meet your needs and that is it is also still the most appropriate policy for you to have.

For more help in reviewing your life insurance policy request our free PDF checklist of 40 Questions to Ask When Reviewing your Life Insurance Policy. It will give you all the questions you need to get a comprehensive review of your life policy.

About Us

Capital for Life provides life insurance and premium financing services to financial advisers, life insurance brokers, wealth managers, private banks, trust companies and family offices.

From its headquarters in Guernsey, Capital for Life delivers solutions to high net worth clients and professional advisers in nearly 200 countries across 7 continents. Want to grow your life insurance business by working with us? Contact us today at enquiries@capitalforlife.com