2 December 2013 0 Comments

What Do You Need…What’ve You Got…What Do You Know?

we have answersMaybe I got to you in my last entry and you are going to do something about getting life insurance.  But, it’s not so simple because you already have a policy or two and you don’t know whether you should keep what you have or start fresh.  Without all the details I can’t advise you, nor can any other agent, but here’s how you should go about it.

  • Don’t become emotionally attached to policies you already own.  It might be a $10,000 Whole Life policy your Dad bought for you when you were 10, but it might make sense replacing it.  Dad’s feelings won’t be hurt.
  • On the other hand, don’t immediately follow the advice of an agent to drop what you have until they give you logical, concrete reasons why it makes sense to do so, other than they don’t make a commission on that old policy.
  • Don’t discontinue any existing policy until your new coverage has been approved and placed in force by paying the initial premium and signing any required documentation.

Enter your conversation with the agent for your new policy by letting them know what policies you have in force and then determining the total amount of coverage you are seeking.  This should be done by a needs analysis (more on that in my next entry) or simply by arriving at the face amount of the total insurance you want expressed as a multiple of your current income.

Once the agent has assisted you in deciding on the appropriate amount of death benefit, they should ask sufficient questions about your medical history and other underwriting factors to estimate what your likely risk classification will be for determining premiums.  Once this is done and you have provided that agent with complete information on your current policy or policies including type of plan and premium, they should be able to demonstrate the pros and cons of keeping the old coverage or replacing it.

Here are some fundamental rules in determining the best approach to take:

  • Replacing one term policy with another term policy is quite simple: which policy has the lowest guaranteed premium for the duration desired?
  • Don’t overlook riders such as Disability Waiver of Premium.  If the old policy has such a benefit, the new one should also show this benefit unless it can be shown there is little economic sense to continue it.
  • If an existing permanent policy has a loan, the interest on that loan must be considered as a part of the on-going cost and added to the current premium.
  • When looking for lifetime guaranteed death benefits, most of the Universal Life policies issued before about 2004, and many issued after that date, only provided death benefits based on current assumptions, whereas UL policies issued today can include lifetime death benefit guarantees.

Remember that when replacing an old policy, a new policy will have a new 2 year suicide and contestable period.

If you are interested in more in-depth information on this topic refer to my blogs from June 25 through July 19, 2012.

Coming up I’ll be looking at some methods of needs analysis in determining the correct amount of insurance.

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