A note for permanent life insurance owners: open your statement
By Ken Godfrey
Life Insurance Financial Evaluations, LLC
If you are one of the many people or companies that own a permanent life insurance policy, you should be receiving a quarterly and annual policy statement from the insurance company. If you are not receiving your statements, call the insurance company immediately to verify your address and contact information.
Many permanent life insurance policies are neglected or mismanaged and risk policy lapse. The easiest way to tell if your life insurance policy is performing up to your expectations is to open your statement and examine the policy values. Too many consumers do not open and review their statements and therefore do not identify potential red flags in policy management.
What to look for:
1. Check the policy cash values and compare the values to the previous time period or statement.
If the current cash values are less today than they were in the last statement period, this is a red flag. Unless the decrease can be explained away due to negative market performance in variable life insurance policies, a decrease in cash values means that the interest/dividend crediting amounts received on the policy are not keeping up with policy expenses.
Policy expenses, in particular the cost of insurance charges, increase with age. If the earnings on cash values are not sufficient to keep up with these rising costs, then the policy performance may deteriorate and risk policy lapse before mortality age.
2. Check to see if there are any outstanding policy loans.
If there are policy loans and this is unexpected, then this is also a red flag event. The policy may be on an automatic premium loan provision or there may be other issues with the policy. If the loans are expected, then a high loan amount in relation to policy cash values is a yellow flag event.
This may or may not be a significant issue depending on a number of factors such as age, recurring premiums and original policy design, but this should be confirmed.
If you notice a decrease in policy values, unexpected or significant outstanding loans on your statement, call your agent or independent life insurance consultant today to discuss. The insurance agent or life insurance consultant can work with you to explain how the policy works and explore any policy modifications that may be needed.
This may require obtaining inforce illustrations from the insurance company to re-project hypothetical long term results based on current policy values and assumptions.
Catching potential issues with permanent life insurance products early is very important. Time is money when it comes to getting the policy back on track, so taking action now can save a lot of money and heartache in the future.