Why An Audit of your Life Insurance Policies is Important
A life insurance audit, however, is a comprehensive study of your existing coverage to make sure it still fits your needs.
Back in your parents’ or grandparents’ day, they might have purchased a life insurance policy, put it in a file and only thought about it when the bill came for the annual premium or when the insured passed away. And that was usually fine. Today, however, policies are a more complicated financial tool that needs to be monitored — much the same as any other assets you hold in your portfolio. The goal is for your life insurance policy to be there for your beneficiaries when they need it most. That is not the time you want them to be surprised, so it’s vital to perform a policy audit on an annual basis and take any corrective action that is necessary.
The audit itself is about more than just the policy. This is an annual opportunity to review your plan and identify any gaps in your coverage resulting from any occurrences from the previous year. It allows you to address any lifestyle changes and answer such questions as:
• Is the policy’s original goal still valid?
• What type of policy do you have?
• Are the original beneficiaries still valid?
• Is the ownership structure of the policy still correct?
• Are there any health issues that could have an effect on your policy?
• Do you still need the life insurance policy?
• Do you need to request or review any recommendations from your insurance advisor?
In order to accurately evaluate your policies, you will need to obtain specific information. The audit will depend on the amount — as well as the quality — of the information received. You should have the original policy and illustrations, the most recent annual statement and a current in-force illustration. Provide these to your advisor, and they will review the information gathered and advise you on any gaps in your plan. The audit is done so you can ensure that all of your plans and wishes for your family and estate are being met.
In addition to looking at your policies, this is also a good time to review the performance and financial health of your carrier. This is a crucial step in your audit. Not every insurance company is on equal footing. Your advisor needs to evaluate the financial stability of the company, as well as its ability to pay any future claims, plus its overall investment portfolio and how the company is rated compared to other carriers. The main goal is to make sure your carrier can meet its future obligations.
After the audit is complete, your advisor should be able to provide you with a clear picture of your current coverage and any shortfalls in your plan. If there are any gaps, your advisor should provide you with recommendations to rectify the situation. If it turns out that after the audit that you remain properly covered, then it is time well spent to ensure your peace of mind.
There are many things that we do automatically each year to ensure the safety of our families: regular maintenance on our cars, changing batteries in smoke detectors, etc. We do this to provide safety and wellbeing for our loved ones. Don’t they also deserve the same commitment for their financial future? One afternoon each year with your advisor will provide your family with the financial protection they deserve.