Have you ever had your life insurance policy audited? Not just reviewing performance on an annual basis, but a thorough and comprehensive look at if the policy you purchased years ago is meeting your current needs. The results could save - or even earn - you hundreds and thousands of dollars. In this episode of Money Script Monday, Brian goes over six reasons to audit your life insurance policy and provides sample scenarios of how the audit created greater client outcomes.

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Video transcription

Hi, welcome to another episode of Money Script Monday. My name is Brian Manderscheid.

Today, we're going to answer the question, “why do a policy audit every three to five years?”.

We're going to talk exclusively about permanent life insurance.

Now, many times when you buy that life insurance policy, you take the binder or folder, put it under a drawer, never to be seen again.

Our goal here is provide you the tools and resources so you can pull that policy out of the drawer and review it with a qualified financial professional.

This is a very common thing to do in other forms of insurance.

For example, let's say you own a home and have a mortgage, you're required by law to have homeowner's insurance.

You may very frequently work with your insurance professional to verify coverage amounts, make sure the deductible is something you're comfortable with, or possibly even comb the marketplace to find an alternative policy with more, better benefits.

Today, we want to talk about two things.

Number one is, 6 reasons to do a life insurance policy audit, and number 2, we're going to go through three different scenarios where a policy audit was able to benefit one of our clients.

6 Reasons to Audit

First, 6 reasons to do a policy audit.

1. Increase or decrease your coverage amounts.

Let's say your financial situation changed, you may have bought a home, got married, had a kid, changed jobs, or maybe even retired.

It's important to make sure that your current life insurance coverage is meeting all the goals that you have, and potentially we could increase or decrease those based on your needs.

2. Increase or decrease your premium payments.

Again, as life changes, we may be able to afford more.

We could buy more life insurance coverage or get more cash value, or we may get into retirement and think, "Well, we no longer want to have a premium obligation, we may be able to either reduce or eliminate that premium while providing adequate life insurance coverage."

3. Manage loan balances and payments.

As life insurance policies are extremely liquid, you may feel the need to tap into those for capital purchases or for emergencies.

For example, let's say you want to send your kids or grandkids to college, or buy a house or business, or maybe even for unexpected financial situation or emergency, you may feel a need to tap into that policy.

When you do so, you now have a loan balance, and it's important when we do these audits to make sure that either you're paying interest, or interest and principal, to pay off that loan balance at some future point in time.

4. Verify coverage length.

This is very important. When we buy a life insurance policy and stick it in the drawer, we believe that that policy is going to be there the day it's needed most.

When we do a policy audit, we look at both projections as well as guarantees.

We want to find out under the current scenario if this policy is going to be there the day it's needed the most.

As well as the guarantee, which is the worst-case scenario, or what the insurance company will contractually guarantee.

5. The assumptions used in those projections.

Now, economic circumstances have changed over the years.

We’ve had fallen interest rates, we’ve had fallen dividend rates for whole life companies, and we’ve had volatility and uncertainty in the stock market.

We want to verify with our audit that the projections of the life insurance inforce illustrations are accurate and sustainable.

6. Review alternative carriers.

And lastly, just like that homeowner's insurance policy where we comb the marketplace, we want to review the alternative options available.

There's a chance we can provide more and better benefits for your life insurance coverage.

So, we talked about six reasons to do a life insurance policy audit, now let's talk about three situations where policy audit actually benefited one of our clients.

Scenario #1: Same Premium, More Death Benefit

This client had a universal life policy which the performance was tied to interest rates.

Interest rates have fallen pretty far over the years.

Now, he bought this policy thinking it was going to be there the day that it's needed the most.

However, when we did our policy audit, we found out that with his premium of $6,000 annually, his $250,000 death benefit was only projected to age 81.

While that's right around life expectancy, he may live way longer than that and be left without life insurance coverage.

Knowing longevity was an issue and the need for more life insurance coverage, we proposed an alternative option which is a guaranteed universal life policy.

This is a universal life with a secondary guarantee.

We were able to pay the same $6,000 annual premium, buy more coverage of $300,000 compared to $250,000, and guarantee that death benefit to age 100.

Regardless of what happens in the marketplace, interest rates continue to stay low or fall even further, interest rates rise.

It doesn't really matter, we have a contractual guarantee from the insurance company that our policy will be there to age 100.

Scenario #2: Lower Premium, Same Death Benefit

This client has a variable universal life policy which the cash value is directly invested in the stock market.

This client is becoming more risk averse and found out that with our policy audit, if he pays his $18,000 annual premium, his million-dollar life insurance protection, his death benefit, is only projected to age 87 under reasonable scenarios in the stock market.

However, we know that stock market performance is uncertain and that the stock market does worse than projected, the policy may lapse sooner than 87.

Again, knowing the client is risk averse and looking for his coverage to be there the day it's needed the most, we proposed a guaranteed indexed universal life policy.

This policy has a secondary guarantee that guarantees a policy to age 100.

It also allows for the upside capture of the stock market performance up to a cap or limiting factor, while also providing a floor of 0% to protect against stock market losses.

We were able to provide the same million-dollar life insurance protection death benefit but reduced the premium from $18,000 to $15,000.

Saving him $3,000 a year in annual premiums, by also reducing risk and guaranteeing that policy to age 100.

Scenario #3: Same Premium, Higher Cash Value

This client had a whole life policy which does offer strong guarantees, but it also has limited upside.

His goal of the contract was really to provide cash value that he can use to help supplement his retirement.

He has $25,000 of contractual premiums for another 10 years. His current death benefit is a million dollars, which is right around what he needs for life insurance coverage.

The projected cash value under current dividends is projected to be $700,000 by age 65.

Now, knowing that he wants to provide the most amount of benefit in cash value available so he can use for retirement, we used an index universal life policy.

While this does offer less guarantees, it does offer substantially more upside.

Again, we have the upside capture of the stock market performance up to a cap or limiting factor, while also protecting against the downside with a 0% annual floor.

We used the same $25,000 premium for 10 years, knowing we have more flexibility with inside a universal life contract, should life situations change.

We actually bought less life insurance coverage of $750,000 to provide the least amount of death benefit that the IRS will allow to make sure that more of our cash value in premiums go to building cash value and less to life insurance policy expenses.

If he needs additional coverage, we can actually supplement that with some low-cost term insurance.

The projected cash value at age 65 is a million dollars as opposed to $700,000.

Essentially, we were able to pay the same premiums to provide more cash value down the road.

Request an Audit of Your Permanent Life Insurance Policy Today

Today, we talked about 6 reasons to do a life insurance policy audit, we provided three scenarios where our policy audit actually provided more and better benefits to one of our clients.

If you have a permanent life insurance policy and are looking for a financial professional to examine and audit that contract to make sure that it's meeting up with your current goals and expectations, please use the information on the screen to request one today.

Thank you very much, folks, we'll see you next time.