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Why old life insurance policies are weighing you down and need to be updated

by 01/18/2017

In the 10 years I’ve been selling insurance, I’ve often heard clients express an assumption about life insurance that is 100% incorrect and important to have rectified. Many of my clients tell me that they don’t want to alter or replace their existing life insurance because it was purchased when they were younger; therefore the price was locked in and now that they’re older, it shouldn’t be touched. I know this seems to be the case, but it’s vital that everyone periodically update and potentially replace their life insurance because that assumption is wrong. Here’s why.

When someone qualifies for life insurance, virtually any policy, whether it’s a term life plan or an expensive whole life policy, the company goes through a painstaking process of approving that applicant based on their health and other factors. Ultimately, when they are approved, the plan costs are set in stone, based on their rating class, as an upward moving curve that elevates as you age. The cost of insuring you is rising even though your payment is not. In a cheap policy, like a 20 year level term plan, the prices over the 20 years are averaged out to give you a flat price over those 20 years.

In a permanent plan, like a universal life policy, the same curve exists, based on your original rating class, and the price also remains level, but when you are younger, at the low end of the cost curve, your payment starts as an overpayment, as your monthly premium exceeds the costs. This excess results in a cash value that grows over time. When you’re older, the costs will be higher than your payment and the cash value you accrued will be used to help pay for the plan. The important thing to see is that the costs elevate (as is visible by comparing your year-to-year annual statements) and that you always are “paying” for the price to insure yourself at your current age, either exclusively from your premium or supplemented with your cash value. The only thing locked in is your rating class.

If you are healthy later in life, often times you can take advantage of changes in the industry. People are living longer than ever before. Actually, the average lifespan of the average American is virtually always extending out further and further. With those additional years, insurance companies have more time to collect premium. The result of this change is that, in the competitive world of insurance, companies will continually introduce newer, cheaper plans designed to take advantage of changes in actuarial charts, which attempt to predict how long people will live. The impact on you and your life insurance policies is that if you can qualify today, you will likely get a better deal now than you currently have in force.

Anther opportunity to save money on old life insurance policies is our suggestion to condense polices into one, but no more than two life insurance plans. A lot of our clients tend to acquire different life insurance plans throughout their lives, each one with a different intended purpose. Stacking up policies like pancakes often leads to overpaying for life insurance. Each policy you own imposes a monthly fee. The more policies you own, the more your fees stack up. It’s generally more advantageous to own one single life insurance plan that meets all of your financial needs. This will be the most economical way of protecting yourself and your family.

Our office experts encourage you to look at your life insurance. If you have plans that are over 10 years old or if you have more than one coverage in force on yourself, give us a call and let us do a no-cost assessment of your protection. In most cases, we can save you money by updating your old life insurance plans.

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