Looking at life insurance

The term ‘fake news’ has been spouted, jousted and used quite a bit in the past couple of years. At its root, we all want to believe news and other statements are based on fact. But when it comes to financial issues, there’s plenty of fake news being delivered every day by unknowing or unscrupulous sales people trying to get into your pocket.

In my experience, fake news comes in just about every area of your personal financial life. It is probably most damaging to you in the areas where it is hardest to verify, such as life insurance. With insurance, for example, how would you know if the life policy is: the lowest cost per thousand, the highest rated company, or the most appropriate product variety for your needs and guaranteed to be exactly what was pitched for the rest of your life?

In short, you don’t know most of these issues unless you believe your insurance agent word for word. Just look at how many people are sold expensive whole life insurance each day when all they really need was a large death benefit to protect the possible loss of income from a bread winner’s premature passing. I’m not knocking whole life insurance completely, but I am knocking the agent who tries to slide a little whole life insurance in next to the term policy that a client asked for when it really isn’t completely appropriate. I see this happen very often.

Another fake bit of insurance news may be what many agents are calling a life insurance audit. The life insurance audit is merely a review of an in-force policy to see that it is performing as it was projected and that it will continue to chug along as forecast and continue to meet your needs. There may be situations where buying a new policy as a result of your audit findings makes perfect sense. But there are times when the audit is just another sales tool to get you to replace your existing policy.

Candidates that may benefit most from a detailed review of their existing life insurance portfolio are holders of permanent life insurance where the facts and circumstances have changed since your policy was issued. The most common change is the dramatically lower interest rate environment. Sorry to be the bearer of bad news, but if you bought a policy 10–20 years ago where the forecasted illustration had large numbers for the anticipated rate of return – you’d better take a closer look.

Most policies issued in that period illustrated returns on your cash value of 6 – 12 percent. Naturally, that didn’t happen and those policies may be on track for a derailment. In the insurance world, that means your policy could lapse or the insurer can send you a letter asking for significantly higher premiums to maintain the coverage.

If you think a review makes sense, be cautious of the proposed suggestions. Consider having an independent professional take a second look.