If you have an older permanent life insurance contract, it’s important that you review it at least every three years in order to monitor its financial health and to keep it from lapsing.
Older life insurance contracts were many times designed initially based upon higher interest rate assumptions. Illustrated rates of 7% – 10% were not uncommon in the 80’s and 90’s. Unfortunately subsequent decades have produced lower interest rates and, as a result, permanent life policies may not be able to stay in force if an additional amount of premium is put in each year.
Just recently, I reviewed an older life policy for a new client. Due to lower interest rate crediting versus illustrated interest rate crediting, the policy is set to lapse within the next 7 to 8 years. Had the original agent reviewed the policy with the client at least every three years, the client could have been instructed to add more premium progressively in order to keep the death benefit in place.
Now, though, the amount of additional premium needed in order to keep the policy healthy is 10x the current premium schedule, which is unsustainable, but could have been prevented. As a result, the policy owner doesn’t get the benefit of what they originally signed up for.
If you have permanent life insurance, is your agent contacting you at least every three years to review the policy?
If you have any questions please feel free to contact me.