Check the Health of Your Life Insurance
A lot can change between when you buy a life insurance policy and when you use it, especially if you are building cash value. Don’t be caught with an unpleasant surprise. Check up on your policy every few years.
Subscribe to our Podcast!
Contact Steve here:
https://calendly.com/stevewershing/inquiry
Full Transcript below:
00;00;00;00 - 00;00;26;27
Unknown
Welcome back to 30 Minute Money. It's the podcast that delivers action oriented, smart money ideas in bite sized pieces. I'm Scott Fitzgerald at Roc Vox Recording and Production in Bushnell's Basin, and Steve Wershing is joining me from Focus Wealth Advisors. Hey, Scott, how are you, sir? I'm well, how are you? I'm doing well. Speaking of well, speaking of how you're feeling.
00;00;26;29 - 00;00;46;13
Unknown
Yes, we're going to health check. We're going to do a health check. That's for your life and for your life insurance. Exactly. We're going to take a health check of your life insurance as part of a financial plan. life insurance is is done most cost effectively if it's part of a long term strategy. So if you need life insurance, better to take a long term approach to it.
00;00;46;15 - 00;01;04;10
Unknown
And but but it is not a setting and forget it. And that's what I wanted to talk about today, is what kinds of things that you shouldn't necessarily change your insurance a lot, but you do want to keep in touch with it because you want to make sure it's still performing for you. And that's what I wanted to talk about.
00;01;04;10 - 00;01;26;17
Unknown
So two basic ways you can get life insurance. One is term, which is kind of rented. You know, it's low cost generally, you know, temporary kind of thing. Although you can get, you know, five year level premium ten year level premium 20 year level premium. but it's it will never accumulate a value. And you're just going to have it for a while and then it's going to go away.
00;01;26;19 - 00;01;46;04
Unknown
But if you have little kids, you're probably going to need life insurance for next 15, 20 years at least until they get out of the house. and so you should periodically check on it. Now, if you get a 20 year level premium term and you're going to have it for 20 years, okay, it's still maybe not a bad idea to get every few years.
00;01;46;04 - 00;02;06;24
Unknown
Just get a new quote. And as you get older, the insurance gets more expensive. But mortality changes. We live longer, they come up with new products. And so it's not, you know, out of the question that if even if you bought a term insurance policy four years ago, that you might not find a better rate now even though you're four years older.
00;02;06;27 - 00;02;32;03
Unknown
So very simple thing to do. You can get a real quick term quote check on it. The bigger one, the bigger one is, checking on permanent policies. The permanent policies are like whole life, universal life, variable life. The kinds of policies that build up a cash value. Those. Absolutely. You should check on every few years because, because, you know, they, they, you know, you want to make sure that they continue to be healthy.
00;02;32;03 - 00;02;52;16
Unknown
And a lot changes inside those policies over the course of time. So, when you get, especially a permanent policy, if you get one of those kinds that I just mentioned, you the, the, the person that gets it for you will typically give you what's called an illustration. and it will it'll be like a spreadsheet.
00;02;52;16 - 00;03;14;18
Unknown
It'll have a table in it that shows you for every year, what's the premium and what's the anticipated cash value build up and what's the death benefit and that kind of stuff. And the one thing I can tell you about sales illustrations is that none of them are true. It never works out that way. because life is different than, you know, the long term assumptions when you get it.
00;03;14;21 - 00;03;36;14
Unknown
and I don't mean to, you know, say and say that anybody's trying to deceive you. I mean, some of them I have questions about because they're a little too optimistic in the hopes of selling more, more insurance. But legitimately, insurance rates change. interest rates change. you know, if you've got a variable policy. So it's got things that look like mutual funds inside of those contracts.
00;03;36;14 - 00;04;11;20
Unknown
Those obviously change every year. And so the things change every year. And so, and so you should check on it to make to, to make sure that it's still going okay, that it's still a healthy and cost effective policy. And the way that you do that is by getting what's called an in-force illustration. So it's, you can go to your insurance company or your financial advisor, you can go to your insurance company, and they will basically just ask for one of those illustrations like you got when you first bought the policy, except that they pick it up where the where you are in the policy and then just projected forward.
00;04;11;20 - 00;04;34;27
Unknown
So if you've had a policy for seven years, when you get this updated illustration, it won't start at one like the original one did. It'll start at seven, but it will reflect the current insurance rates. It will reflect, reflect the current interest rates in it. It will reflect the current expenses in the contract, and you can compare it to the original to see how close they are to what they thought they were going to do.
00;04;34;27 - 00;04;57;03
Unknown
But that's not terribly important. What you want to find out is what are the internal dynamics of that policy right now? how much are you paying into it? How much is being taken out for insurance? How much is being taken out for expenses? how much is being taken out for what's called a policy load? you know, all of those kinds of things you want to find out, and then you also want to see what's being added to it.
00;04;57;03 - 00;05;20;15
Unknown
So typically that would be interest. So you've got premiums going in. You've got interest accumulating. If you've got one of those variable contracts, you've got investment performance inside of that contract. And you want to look at the projections now, because I promise when somebody introduces you to a life insurance policy, those projections are going to look terrific. you just want to take a look and see what what they look like.
00;05;20;15 - 00;05;45;08
Unknown
Now, I, we do this all the time with folks. And you know what? What we see a majority of the time is the value in the policy going up for a while and then plateauing and then coming down. And sometimes it just comes down to where it's worth very little around the time when you know you're most likely to pass away, sometimes it collapses before you're likely to pass away.
00;05;45;10 - 00;06;15;15
Unknown
You need to know that up front, right? Yeah. So I did one of these analyzes for a client, just a couple of weeks ago and saw that, you know, now there are two, two ways that they projected. One is on a guaranteed basis. So one is if if everything goes wrong, if the insurance rates, if the insurance charges go to the maximum allowed under the contract, and interest rates fall to the minimum, that they'll guarantee, this is what it'll look like.
00;06;15;15 - 00;06;35;13
Unknown
Those typically never look very good. And that's okay. I will because that is that is the that is the worst possible case scenario. So you may you might want to know it, but I wouldn't make your decision on that. The other column is going to be what's called current assumptions. So current and current insurance charges, current interest rates, those kinds of things.
00;06;35;13 - 00;07;01;19
Unknown
You want to take a look at how that project out and I yeah I looked at one for a client just a few weeks ago. And what we saw was the policy, you know, the value went up a little bit, but even when they continued to pay premiums, the value started declining and started declining, started climbing. And on a current basis, it was projected to collapse when they were around 70, which is a couple of years before they're likely to die.
00;07;01;21 - 00;07;21;17
Unknown
And so that would mean that unless they put a ton of money into it, there's probably going to be no death benefit when you'd be in a position to claim it. And you want to know that upfront. You know, one of the jokes I tell about financial planning is, you know, if my if my clients are going to run into problems, I want to make sure I give them 20 years notice.
00;07;21;19 - 00;07;47;12
Unknown
And so, looking at that, you know, you can see on a current basis, is it going to is it going to last until you're going to use it? And if not, the question is how long do you hold on to it. But that's really important to know. so what I would do is I would take a look at, you know, what it what it looks like, and then I would take a look at what is the projected to be worth 20 years from now, if it's still going to be going along strong at 20 years, we're good.
00;07;47;12 - 00;08;07;27
Unknown
We're solid. but if it's going to be significantly declining in those years. Yeah, you're better off knowing that now than waiting until later, when all the value has been eaten up by the internal charges and, and costs. And is it easy to just get out of it? If there's a policy that you don't like, you you want to get a different one?
00;08;07;27 - 00;08;29;28
Unknown
Sure. Yeah. you can do a couple of things. One is, you know, the question is, do you still need it? do you need a different amount? Right. So even without changing the policy, even without changing companies, you could say, well, you know, when I had little kids, I needed $300,000 worth of insurance. you know, I we did we did what we call a capital needs analysis.
00;08;29;28 - 00;08;56;24
Unknown
We say, okay, well, if if one of you passes away, what does the other one need? And then what assets do you have to cover that? And if there's a gap still and you need it, you might find that the gap is a lot smaller. So. Well, you know, maybe we can just reduce the death benefit on this life insurance from 300 to 150 or whatever, even keeping the same premium and the same cash value, it will obviously go a lot longer because there's going to be a lot less taken out of the policy for the insurance charges.
00;08;56;27 - 00;09;16;12
Unknown
But if you find that you know that it's going to be declining pretty significantly, you may want to consider just you could either cash out of the policy, take the check invested if you don't need the coverage. If you do need the coverage, it's probably worth talking to somebody about what what current products are out there. They may be better designed.
00;09;16;12 - 00;09;34;13
Unknown
They may be more cost efficient, and you can take the cash value of the existing policy, roll it into the other one on a tax free basis, exchange one policy for the other, and potentially get one that maybe that may perform better.
00;09;34;15 - 00;10;09;07
Unknown
Your retirement is at risk, not from the stock market, not from inflation. Taxes are putting your retirement at risk. I'm certified financial planner Steve and I specialize in helping people create low tax retirements. Unmanaged taxes can take 30, 40, even 50% of your retirement income. Learn how to defend yourself against excess taxation. Our complimentary webinar will cover all the principles you need to know to protect your money for you and your family, and keep it away from the government.
00;10;09;09 - 00;10;30;20
Unknown
This free webinar will cover how taxes are different in retirement, the taxes you pay in retirement that you don't have to pay during your working life. How to move tax savings into a tax free environment. The widow's tax, the Secure act, the Secure act 2.0 and what they mean to you. The webinar is free, but you have to register to save your spot.
00;10;30;20 - 00;11;00;05
Unknown
So go to Focused Wealth advisors.com/webinars and find out more and sign up right there. Even if you're not planning to retire for the next 5 or 10 years, this information will be critical for you. The longer you have to put the strategies into effect, the more you can accomplish. That's focused wealth advisors.com/webinars to find out more and to sign up today.
00;11;00;08 - 00;11;22;27
Unknown
All right check in the health health check. What's your 30 minute action item? 30 minute action item is if you have a permanent life insurance policy, get an in-force illustration. Enforce sounds so I know right. Forceful because there's military strong. Well that's another episode of 30 Minute money. Three minute money. You can find us on all the platforms.
00;11;22;27 - 00;11;51;02
Unknown
Don't forget to like, share and subscribe. You can contact Steve Wershing at FocusedWealthadvisors.com, and we will catch you next time on 30 Minute Money.