A Step-by-Step Guide to Conducting a Life Insurance Audit

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Many people tend to neglect the insurance part of their portfolio, but it is one of the most important tools you can have as a part of a financial plan.   Just like your investments or other assets it should be reviewed regularly to ensure it is still protecting you in the ways that you need it to.  The steps below will help you get started on your own life insurance audit.

What You Need to Know

Step 1: What is the Purpose of My Current Coverage?

Ask yourself what purpose the life insurance serves you and your family.  Your insurance could be used for any of the following purposes:

  • Debt Elimination
  • To Fund an Estate Strategy
  • Income for a Survivor or Dependent
  • To Fund a Buy Sell Agreement Between Business Partners
  • Investment
  • Charitable Donation

It is essential that the type of insurance you own is compatible with your plan for its proceeds.  For example, if your intent is to leave the insurance proceeds to a charity upon your death, a term policy would not make sense as it’s possible the term would be expired years before your death.  A trusted financial advisor can help you determine if your current coverage is suitable, and if it is not, what options are available that could better carry out your last wishes.

Step 2: Do My Beneficiaries Need to be Updated?

Beneficiaries are typically named when a life insurance is purchased, and they determine who will be eligible to receive the proceeds of the policy upon your death.  Therefore, it is important to regularly review who your named beneficiary is.   Marriage, divorce, and death of a loved one are all reasons to do a review of your beneficiary and potentially assign a new one if necessary.  Beneficiaries can be individuals, a corporation, business partners, a registered charity, or your estate.

Step 3: Have I Experience Any Major Life Changes?

Insurance needs change as life changes. Major life events warrant a total insurance review. Examples of life changes can affect your insurance needs:  

  • Marriage
  • Divorce
  • Purchasing a Home
  • Birth of a Child
  • Owning a Business
  • Death of a Partner
  • Gaining custody of a dependent
  • Taking on significant debt

You may find your insurance need is greater than when you initially purchased your life insurance policy.

Step 4: Have I Reached Any Financial Milestones?

Have you paid off your mortgage?  Paid off your business loan?  You may not require the same amount or type of insurance policy.   Reaching a big milestone like this could mean you could be better served by different type of policy.  For example, if your $5 million business loan was covered by a term policy of the same amount, you may no longer require such a high face value.  It may be more beneficial to convert the policy for a smaller amount (i.e… $1 million) to a more permanent policy.

Step 5: Have My Premiums Changed?

This is particularly relevant when it comes to term policies.  At the end of a term, a term life insurance policy automatically renews.  This can drastically increase the premium. Since policies renew automatically, it is possible your premium has increased since purchasing the policy. 

The Bottom Line

You should do a life insurance review every 2-3 years.  You may be surprised at how much your life has changed! We can help you review your policies and make recommendations based on your ever-changing situation. Should you wish to schedule your review appointment, please contact Winnie at winnie@leoganda.com.

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Disclaimer

This information is designed to educate and inform you of financial strategies and products currently available. As each individual’s circumstances differ, it is important to review the suitability of these concepts for your particular needs with a Qualified Financial Advisor.