How To Understand Your Existing Life Insurance Policy

Hi, my name is Tan. I am an independent CERTIFIED FINANCIAL PLANNER™ practitioner. I have done over a thousand insurance policy reviews with clients and I have came up with a list of questions that are important to understanding existing life insurance policies. I am making this clip because I want to share the questions with you so you can better understand your current life insurance policies.

First, ask yourself. 

• What is the purpose of this insurance policy?

• Do I still need the coverage?

• Do I need more or less coverage?

Once you have established the purpose of the life insurance policy. It’s time to talk to your current financial advisor or call customer service to ask them these questions so you can better understand your policy.

• What is the address, phone number, and email you have on record?

• Who owns the policy?

• Who is the insured?

• Who are the beneficiaries you have on record?

Take this opportunity to update any information you need and if a form needs to be signed, you can ask the representative to mail it to you.

• What is the grace period on this policy?

• A grace period is how many days do you have to pay for the premium you missed.

• What is the reinstatement clause on this policy?

The reinstatement clause is your policy that is not active because you forgot to pay the premiums. You can have the policy active again by paying for all the missing premiums plus interest. This is a big disadvantage because you might have to go through underwriting again. The key difference between a grace period and reinstatement clause is that the grace period is when the policy is still active and reinstatement clause is when the policy is no longer active.

• What is my current rating health class?

• Is there a better rating health class than I am currently getting?

• What do I need to do to qualify for the best rating health class?

• What is the original death benefit?

• What is the current death benefit?

• Is my death benefit fixed or variable?

• Is the death benefit guaranteed?

• If so, for how long?

• What is the current cash value?

• How can my policy build cash value?

• If I want to take out a loan from my policy, what is the maximum amount I can take out?

• What is the interest rate on the loan?

Be careful when taking out a loan against your policy. If you don’t do it right, it can blow up on you. Which means your policy could be canceled and you might have to pay taxes.

• Does my policy generate dividend?

• If so, what are the dividend options?

If your policy is linked to the market, you want to know what options are available such as, the performances and expenses of the investment funds. You definitely would want to talk to a skilled licensed professional when there is any investment components in the life insurance policy.

• Are there surrender charges if I cancel the policy?

• What is the date I am out of surrender charges?

• What are the current benefits and riders on my policy, if any?

• Can you explain to me how the benefits and riders work and can you also mail me a copy of the description so I can keep it for record?

• Can I drop the benefits and riders I currently have and how would that affect my premiums?

• What benefits and riders can I add now without going through underwriting and how would that affect my premiums?

• Are the premiums fixed or flexible?

• Will the premiums change in the future?

• What is the total amount I have paid on the policy?

• Can you walk me through the claim process?

I’d like to end with asking for a premium schedule if it's a term policy. If it's a permanent policy, ask for a copy of an inforce ledger which is also called an inforce illustration. An inforce ledger is a document of your insurance policy as it stands now with future projections based on assumptions. 

Here is how you can ask the question: 

• Can you mail me a copy of an inforce ledger based on what I am currently doing right now?

If it’s a permanent policy, you want to get different hypothetical returns. There are gross return and net return, the difference is gross return is before fees and net return is after fees. Depending on the types of policy is how you want the inforce ledger to be run. After you received the inforce ledger, you can compare it with the original proposal. The one that you sign when you first bought the policy. If you don’t have one, you can call customer service to mail or email you a copy.

• Remember to take your time and ask questions on one policy at a time if you have multiple policies.

• Document the conversation and place it in a safe place alongside the policy.

I hope this clip was informative and practical. If you can think of other questions, please comment below so we can all benefit from the questions.

Until next time. This is Tan, your trusted advisor.

This material is for educational use only and does not constitute tax, legal, or investment advice. Information may be changed or updated without notice. Consult with a licensed professional regarding your personal circumstances.

Please do not excerpt or copy this information without prior consent from TAN Wealth Management.