01/27/12: Insurance can be a vital part of any financial plan, providing a sense of security during turbulent times. We expect that if we pay our premiums on time the policy will be there when we need it most. Over the past few years lapsing insurance policies are becoming more commonplace, even if all premium payments have been made on time.
The problem began to arise as interest rates that are used for calculating cash values for life insurance polices began to fall. For example a policy that was sold showing a 12% interest rate and now only receiving an interest rate of 3% to 4% may have a cash value that is less than originally projected. This becomes a greater problem in the later years of the policy when the cash value would be used to offset premiums. As with your investments, insurance policies need to be reviewed periodically to ensure they are performing how they need to. For a life insurance policy this is accomplished by requesting an In-Force Illustration. This document will show how the policy will perform if you continue to pay premiums and the cash value grows at a certain rate.
If there appear to be problems with you policy, you may have several options. The first one is to pay additional premiums to make up for the decreasing cash value. The second option is a result of changes that have occurred in the insurance industry over the last few years. In 2001 insurance companies were required to adopt new mortality tables because of changes in longevity. This means that the premiums on policies written before 2001 may be much higher than ones written now. By utilizing a 1035 Exchange (IRS Rule regarding Life Insurance Cash Value) you may be able to purchase a new policy with the same death benefit but with lower premiums.
We would love to talk with you if you have any concerns regarding you current policies or if you have never had a policy review. Also, feel free to email me here.
Senior Vice President
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.
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