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Help Clients Reassess Their Life Insurance Policies

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What You Need to Know

  • COVID-19 has given everyone a lesson about the importance of protection.
  • Too many of your clients may still be making ex-spouses their primary beneficiaries.
  • Plenty of other life changes could change coverage needs.

The unfortunate effects of the pandemic have led many people to increasingly ponder their mortality — reflected by LIMRA research indicating that 31% of Americans are now more likely to buy life insurance.

Whether your clients decided to purchase a policy within the past couple of years or did so before COVID-19 emerged, September is Life Insurance Awareness Month and offers a great opportunity to reevaluate and potentially update these documents.

I believe there are four key considerations for financial advisors when conducting life insurance policy checkups on behalf of their clients:

1. Identify any life changes.

Significant life changes since the purchase of a policy can dramatically impact your client’s insurance needs.

Have they:

  • Become a parent?
  • Had additional children?
  • Taken on a new mortgage?
  • Changed their job?
  • Gotten married or divorced?
  • Experienced a change in health status?
  • Become a provider/caregiver for a parent or other family member?

Changes such as these should all be evaluated to determine whether the current policy is still a good fit.

Anecdotally, I’d say about once a month, my firm discovers that a client’s life insurance policy still designates an ex-spouse as the primary beneficiary.

Alerting a client to this situation is often greatly appreciated, not only by the client but possibly by their current spouse too.

2. Evaluate the current policy,

Even when a policy has been purchased relatively recently, many policyholders don’t have a clear idea of what it entails, so I recommend taking a closer look at these details.

In addition to the beneficiary information, advisors should check whether the policy is term or permanent coverage and what variables effect the policy.

Another important aspect is whether a policy has an updated in-force illustration.

If the policy is guaranteed permanent or term coverage, it will look exactly the same as when the client bought it.

But if there are variables, what risks did the client accept and what risks were transferred to the insurance company?

Understanding whether the policy is healthy or needs more funding can be very useful for financial planning.

3. Ensure that the insurance company is a good fit.

Besides the policy itself, the insurance company providing it should also be a good fit for a client’s needs — and the reassessment process might reveal that it would be sensible to change providers.

There are many insurance companies out there, all offering potential pros and cons.

The coronavirus created unique circumstances that could have influenced a client’s choice at the time they purchased a policy.

For example, some people who sought to obtain a policy at the height of the pandemic might have been very concerned about practicing social distancing.

As a result, they didn’t like the idea of interacting with a health care professional who needed to collect a blood sample or conduct an EKG.

Perhaps for that reason, they were only interested in insurance companies that would provide a policy without an in-person examination.

Now, with widespread vaccinations and a drastic reduction in fatalities caused by COVID-19, it might make sense to revise that perspective and consider a wider pool of providers.

4. Determine whether the policy should be modified or converted.

When a life insurance policy evaluation is conducted, clients might decide that changes are needed because the current policy no longer fits their needs.

One modification might be increasing or decreasing the level of coverage, while a major change could entail converting the policy from term to permanent coverage.

The ability to increase or convert a policy depends on the company, which also speaks to the importance of finding the right provider for each client at the time of the initial purchase.

Policies can almost always be decreased in value, because this lessens the risk assumed by the insurance company.

In summary, obtaining life insurance is often driven by a desire to be proactive about providing solutions, rather than leaving problems, for family and loved ones when the policyholder passes away.

Life Insurance Awareness Month is an ideal time to verify that a policy still serves this purpose. Financial advisors are in a great position to help — allowing you to provide an important service to your clients while increasing the value you can offer.


Howard Sharfman. (Photo: NFP Insurance Solutions)Howard Sharfman is a senior managing director at NFP Insurance Solutions.

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