Does Your Life Insurance Policy Really Cover What You Think It Does?
Many years ago you did good thing by purchasing life insurance to protect your family and your assets. However, do you know if the coverage and value of that policy are still valid today? Changes in your life over 40, 20 or even 10 years can greatly affect your insurance policies. Did you know that the typical person purchases life insurance seven times in their lifetime? These reevaluations allow your policies to reflect changes in life style, marital status, cost of living, projected income, etc. If you have outdated insurance policies, the goals you had in mind when you originally bought them may not come to fruition.
Potential Life Changes that Can Affect Your Insurance Policies:
Address Changes – Although it may seem simple to update your address, you might be surprised by the large number of “return to senders” there are in the insurance world. When insurance issuers do not have a current address, updates are not sent, making it even easier for policy owners to forget they have the policy. After some time, these lost policies are sent to the state unclaimed property division, rather than paying out to the beneficiaries. Also, we find that once a policyholder moves out of state, the policies tend to go unclaimed. Beneficiary Changes – When life insurance was purchased long ago, the owners can forget whom they designated to receive the benefits of their policy. Perhaps a primary or contingent beneficiary has died, or there has been a divorce. Updating your policy ensures your original intentions are carried out.
Ownership updates – In some cases, the policy owner is not the insured. This situation is common in such cases as 1) an ex-spouse may hold ownership of a life insurance policy on his/her ex-spouse, or 2) a business owned policy where legal contracts are being enforced and the standing given to certain individuals in the original policy is no longer valid. It is important to review ownership of your policies to help keep surprises at a minimum when it comes time to submit a claim.
Amount of coverage – We see many cases where people purchased policies 30+ years ago based on their life circumstances at that time. Costs go up over time. These outdated policy owners now find themselves underinsured, where the payout of the original policy no longer covers the costs they were intended for, like funeral expenses. We recently had a client face this issue:
Our client’s mom and dad bought a policy in 1949 for $1000 to cover their funeral and final expenses. Unfortunately her dad’s end-of life care left our client paying $3,700 per month out-of-pocket. Now that he has passed, she will need to come up with the funeral expenses as well, of which that $1,000 will be a drop in the bucket. Because her parents were underinsured, she must now to go into debt to honor her father’s memory.
Reevaluating your insurance coverage from time to time as life evolves can help you leave your family in a better place when you pass. No surprises makes the mourning process much easier for those left behind. If you have questions about your life insurance policy, send us an email, or give us a call at 317-663-4138.
