It’s hard to believe that 2022 is ending. It has been a year of both challenges and opportunities. Many people’s attention has been set on the rising and falling markets. The pandemic finally started to wane, and life returned to normal. A hard-fought midterm happened that continued our government being bitterly divided.
It is hard to predict what 2023 will bring. We go into each year trying to predict how the year will go and it usually never turns out the way we envisioned it. The start of a new year is a good time to review your current life insurance, which can lower the uncertainty that comes with a new year.
Many people buy life insurance, put the policy away, and forget about it. It’s possible that the policy was purchased online, or the agent does not proactively review the coverage. Life changes fast and protection needs from five or ten years ago might have changed. Is that policy that was purchased still the right one? Is there an opportunity to improve existing coverage? Is the policy performing as purchased? These are the questions that are important to be included in the Life Insurance protection conversation.
For many people, the past year brought life changes like marriages, divorces, birth of children or grandchildren, income changes, wealth accumulation, and or a death are all factors that determine the amount of life insurance that a person should have. There is a good chance that policy purchased five or ten years ago is not providing the correct amount of coverage or for the correct period.
Are the current beneficiary designations still relevant to you today?
The age, smoker status, and rate class are the three factors that determine the premium amount. The three factors can and do change over time. Unfortunately, age only increases and that does drive up premiums. However, people who were smokers and are not anymore can apply for a smoker change on permanent policies or can be underwritten for a new term policy. People who lose weight, lower blood pressure, and cholesterol can re-apply for an improved rate class. Even people who were issued at substandard rates due to a more serious medical impairment can possibly obtain a better rating. Smoker status and rate class improvements can result in lower premiums. Also, people who are now uninsurable who have term coverage that will and need permanent coverage can convert to a permanent policy if the policy allows.
It is critical for policy owners of permanent life insurance to review the policy performance annually. Whole Life policies have a guaranteed cash value and fixed premiums. However, the dividends earned are often projected to pay future premiums or to increase coverage. Whole Life policy dividends are a return of excess premiums. The amount of these dividends or return of excess premium are calculated based on three factors.
- The insurance companies mortality experience or how much in death claims have they paid out.
- The insurance companies investment experience in their general account.
- How well did the insurance company manage their operating expenses. A policy review with an in-force ledger with an updated projection of potential future dividends will show how the policy is performing.
Fixed and Variable Universal Life policies all have an account value and the cost of insurance and other policy charges are deducted from the account value. The account value grows by premiums paid, interest earned for fixed UL policies and investment returns on variable UL polices. The period that premiums are to be paid are determined by the performance of the policy account value. A policy review with an in-force ledger with an updated projection will show how the policy is performing.
The new year of 2023 will bring new opportunities for life insurance sales. The end of year spending package congress revised the tax code by lowering the minimum interest used in the section 7702 definition of life insurance test. This will result in new product innovations to allow more money to be paid into permanent life insurance. This coinciding with potential tax law changes proposed by the Biden administration will make Life Insurance an important part of supplementing retirement plans. Reviewing your life current life insurance could not be important for 2023.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made prior to age 59 ½ are subject to 10% IRS penalty tax. Surrender charges apply.