Is Life Insurance a “Set and Forget” Asset? (Published 03-2019)
Much of the life insurance purchased over the past 15-20 years for estate planning purposes was of a type known as guaranteed universal life insurance.
It was (and is) popular in estate planning because it was generally less expensive to buy than traditional whole life, yet it came with a guarantee such that the risk of policy performance was shifted to the insurance company.
For the most part, the policies have performed as expected. But these policies should still be reviewed periodically, if not annually.
Here are a few of the key reasons to review:
To Find Errors
Over the last 10 years, insurance companies charged with reducing costs have achieved the goal by workforce reduction. This translates, in many cases, to reduced service and it seems, reduced training, particularly with regard to legacy computer systems used by the carriers to produce illustrations. As a result, we have had reports of a number of errors popping up in policy illustrations. Be sure to have your insurance professional order an in-force ledger for you to verify that everything looks as it should.
To the best of our knowledge, there has never been a case where the failure of an insurance company has meant an unpaid death claim. But that doesn’t mean it might never happen going forward.
For that reason, we recommend keeping an eye on the credit rating of your life insurance company to make sure they remain solid.
You can usually find ratings online for your carrier. The most widely used ratings to look for are S&P, Moody’s, AM Best, and Fitch. There is also a composite rating called Comdex. Minor ratings changes are usually not a cause for concern, but a major downgrade could be. Be sure to periodically ask your insurance professional to send you the credit ratings for your insurance company and solicit their thoughts on the financial strength of the company.
In general, the cost of insurance goes up as you get older, but not always. So, it pays to shop your insurance from time to time. One of our colleagues reported that two of his clients were recently able to purchase new insurance, at about a 10% savings. Even though they were 5 and 10 years older. It pays to check.
Matthew V. Piwowar is a Grand Rapids estate planning attorney. Mr. Piwowar is a member of the State Bar of Michigan, and the State Bar Probate & Estate Planning Section, the National Network of Estate Planning Attorneys, and the Michigan Forum of Estate Planners.
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