Most financial planners recommend reviewing your life insurance every two to three years. However, many of us continue to pay the premiums on our existing policies for years without a thought reviewing, much less changing, our insurance cover.
Our situation can go on like that until we receive a call from our financial planner or a cold call from a new insurance company touting a sparkling new product. Finally, the gears start during and we blow the dust off our original policy to find out if an adjustment is necessary.
With our existing cover under the microscope, we may finally identify policies that are no longer adequate and should be enhanced or replaced. We may find economic or lifestyle changes, career choices or simply advancing age have rendered our cover incompatible with our needs.
Before opting for a new life insurance policy, especially if we are prompted by a sales call, we should ask two key questions. First, does this recommended policy truly address my needs? And, if you are considering cover from a new or "unknown" broker, determine why this particular product is being recommended. Is the broker motivated by the sale, or am I truly a good candidate for this policy?
To asses the suitability of a product that will replace an existing policy, it is important to ask a lot of questions while keeping these points in mind:
Check to see if your existing policy provides a premium guarantee which keeps your premiums from rising throughout the term of the policy. Most newer policies have a defined guarantee period, stated in the quotation. The premium is reviewed at the end of this period, and could result in a substantial increase in the premium. The review is not based on the individual insured, but rather is based on the insurer's number of death claim pay-outs during the term. If an insurer has paid more of these claims than were planned, it is likely your premiums will go up. If not, your premiums will likely remain unchanged.
Many older life insurance policies include an investment component, while most newer products do not, enabling insurance companies to provide the same amount of cover at a lower premium. This is a leading reason for canceling an existing policy since this investment portion, called the cash or surrender value, is often much less than the value of the premiums paid.
Be very careful about the benefits of any new policy, especially the conditions and definitions of the disability and dread disease cover. There is currently no standardization of the terms used in these policies. The average level of cover for various medical conditions has changed over time, so be sure you that this factor into consideration in your comparison. In addition, many new policies use a sliding scale for payouts depending on the severity of the disability or type of disease.
Don't be afraid to make a point of pressing your broker in the finer details to avoid short-changing yourself. Remember that the primary reason for purchasing a new product is for the benefits it offers. If the benefits you need or want are not present or are reduced, do not buy the policy.
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