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The Importance of a Year-End Insurance Review

December 22, 2020

Your insurance policies are a crucial component of your financial planning checklist. Policies for homeowner’s, auto, life, umbrella, long-term care, and other coverages you may have are all useful ways of managing your liability and risk.

But coverages and costs change, and new policies might become available. More importantly, if it’s been a while since you took stock of your policies, there’s a chance your coverage has gaps that are leaving you open to unnecessary risk or overlaps that are costing you more than you need to pay.

At First Western Trust, we recommend that you take stock of your insurance policies — especially life insurance policies — on a regular basis. As you have children and grandchildren, grow older, change careers, or even move to new cities, your needs will change. A regular insurance review will help you determine whether your policy is meeting your financial needs and performing the way you need it to.

Product Considerations

Insurance policies are complicated, full of contingencies and caveats, and insurance brokers know that. If you signed up for a life insurance policy in your 40s and didn’t get expert help, there’s a good chance you don’t know exactly what’s in it. We’ll start by auditing the policies themselves. We’ll examine:

  • Funding: if your policies are underfunded, you might need to pay additional premiums or adjust your benefits. If your policies are overfunded, you can bring premiums down.
  • Loans and withdrawals: if your insurance products are paying lifetime distributions, they can have an effect on the policy’s performance. Regular reviews will help align your policies with your financial priorities.
  • Credit and charge assumptions: your policy was built with certain assumptions in mind about your personal finances. As your income changes, your policy may need to be updated as well.
  • Policy enhancements: your insurance provider may have added features since you initially signed your policy, or a competitor may have emerged on the scene who can make you a better offer. Regular reviews can make you aware of new product offerings.
  • Policy maturity: term and endowment policies expire after a few decades, and older life policies often end at age 95, an age that’s becoming more and more attainable. A policy review can find and mitigate your maturity concerns.
  • Tax implications: life insurance receives special treatment from the IRS. If you have the opportunity to improve on an existing policy, you might be able to exchange a previous policy, allowing you to obtain a new policy while still deferring income taxation on the gains you’re already accumulated.

Planning Paradigms

In addition to changes in the insurance products themselves, your lifestyle might have changed significantly in the time since you initially signed up for the policies you currently carry. We’ll examine:

  • Policy needs: Everyone’s tolerance for risk and goals changes over time. You need to adjust your life insurance needs over time to ensure that the product type matches your financial objectives and current situation in life.
  • Laws and regulations: In the last few decades, the Dodd-Frank Act, Affordable Care Act, Department of Labor Fiduciary Rule, and several other pieces of legislation have affected the way that insurance is administered, regulated, and monitored. Changing laws can have a significant effect on your planning.
  • The strength of your carrier: insurance providers are companies like any other, and they are subject to the swings of the market. Insurance companies are routinely reviewed by ratings agencies, and we can help ensure that the company backing your policies is strong and stable.
  • Medical advances: life expectancy in the United States has risen more than ten years since 1970, and advances in specific areas have made those gains even stronger. Your policy was built on assumptions about mortality that may be outdated.

Finding the Right Insurance Advisor

To properly plan and assess your insurance portfolio, you need the assistance of a professional insurance advisor. An insurance advisor is not the same as a financial advisor — they provide specialized guidance and advice for their clients to help them invest in insurance products that support their long-term plans.

An insurance advisor also differs from a broker in that the advisor has no vested interest in a particular policy. Advisors are in a unique position to understand the needs of their clients and their families, examining their personal finances from a holistic perspective and directing them impartially toward the best insurance products available.

At First Western Trust, we pride ourselves on not only the technical knowledge of our advisors but our holistic, bespoke approach to your financial needs and priorities. We’ll examine every aspect of your financial needs and goals to help you craft an insurance policy that’s right for you. If you’re ready to assess your insurance portfolio, get in touch with First Western Trust today.

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