Why You Should Be Reviewing Your Life Insurance Policy
You purchased a life insurance policy. Now what?
When you purchase a life insurance policy, you may likely feel that’s it! Done deal. You can finally have some peace of mind knowing your family or business is financially protected. Not so fast. It’s not a just-get-it-and-forget-it-kind of purchase. The next important step is reviewing your life insurance policy with your advisor on a regular basis.
We understand it is not front-of-mind all the time, but to let your life insurance policy sit in a drawer and never see the light of day again would be doing a disservice to you, your loved ones and your business interests. The over-arching goal of any policy review is to confirm that your existing coverage meets your current needs because as your life changes, your life insurance needs change too.
We also like to keep in touch with our clients and enjoy speaking with them and educating them about their policies. Consistent policy reviews are also a great opportunity to learn more about your policy and ensure you are leveraging your life insurance policy to its fullest potential while addressing any gaps in coverage that may arise because of lifestyle changes.
Did you know that regular policy reviews, or making reasonable attempts to do so, are required to meet the standards set out by Canada’s life insurance industry?
Although the recommended Industry standard is to conduct policy reviews once a year around your policy anniversary date, at MacDev Financial, we think it should be more often.
As your lifestyle can change ever so quickly, we like to schedule your first policy review with us after 6-months of receiving your initial policy. We continue to schedule policy reviews with you every 6-months after that. Regular policy reviews ensure that we can stay true to your and our financial values.
As you can tell, at MacDev Financial, we take these policy reviews very seriously, and likewise, we have processes in place to keep in touch with our clients.
If you haven’t heard from us lately, it may be that your contact information has changed. If you’ve changed your contact information or haven’t seen correspondence from us in a while, we advise that you contact us to confirm your contact information. We encourage you to schedule a policy review with us at any time you feel is necessary for whatever reason.
However, below are the 12 top reasons you want to look out for when it comes to scheduling a policy review with us right away. Regular policy reviews are especially significant if you have permanent life insurance like participating (aka dividend-paying) whole life policies—no matter how long ago the last policy review you had happened!
1. You recently married or are in a common-law relationship.
Though we don’t like to think about it, a life insurance policy provides coverage for your spouse, even a common-law partner, after your death when they will need protection the most. A great reason to contact us is to discuss a permanent life insurance policy. Permanent life insurance is also considered an asset and could be the best fit to meet your long-term financial and lifestyle goals.
As a first asset, permanent life insurance can help you save for a down-payment on your second asset, real estate. Permanent life insurance (such as participating whole life insurance) features a cash value that builds equity, similar to real estate, over time through guaranteed contractual growth and potential dividends. And then there are the tax advantages. Something to keep in mind as well, some term insurance policies may have the ability to convert to a whole life insurance policy.
Getting married could also require a change of your beneficiary if you want your spouse to receive the death benefit funds from your policy. Another option is purchasing a joint life insurance policy together. A policy review is the best way to get questions answered and go over your financial strategy.
2. You are separated or divorced.
Separating from your spouse or getting a divorce is a life-changing event that impacts your life insurance coverage and warrants an immediate policy review. Firstly, you want to confirm your life insurance coverage reflects your new change in marital status.
You may also want to talk with your advisor about the safety net included in your coverage that protects life insurance assets from relationship splits. You may also want to change your beneficiary designation to someone other than your ex-spouse or partner.
Another consideration is affordability which can become challenging if you drop from a two-income household to a single-income one. If children are part of the relationship, you’ll want to ensure they are financially provided for no matter the situation.
3. You had a baby or adopted a child.
Adding a child is one of life’s greatest joys but becoming a parent can be costly. According to *Loans Canada, the average cost of raising a child in Canada up to age 18 is roughly $253,947 (or $13,000 per year). When you expand your family, it’s imperative to review your life insurance policy to ensure you have enough coverage to protect your entire family.
The birth of a child can also be an excellent opportunity to purchase a juvenile or children’s life insurance policy at an affordable rate. You also lock in their insurability into adulthood before any challenges can arise. Your child can use their juvenile life insurance policy to start building wealth for their future, using it as a source of post-secondary education financing and even as a down-payment on a home or eventually starting their own business. There are so many options to leverage their policies, something your advisor would be happy to review with you! You can also check out our blog How to Help Your Kids Build Wealth from Birth for more information on the benefits of juvenile life insurance policies.
4. You purchased a home.
The purchase of a new home is super exciting! But homeownership also marks a significant change in your lifestyle and financial responsibility, especially for first-time homebuyers! Many families feel a mortgage is manageable on two incomes, but could your spouse afford mortgage payments on their own if you were to pass away? Whenever you purchase a new home, vacation home, investment property, or refinance your existing home, you should always review your life insurance policy to ensure your coverage can pay off your mortgage. If you have a term insurance policy, you will also want to ensure the “term” period covers the duration of your mortgage.
5. You changed employment or got a raise.
A change in employment (getting a raise or moving to a job with a higher income) also signals a good time to review your policy. Changes in your income level could result in you purchasing a larger home, new car or other big-ticket life expenses or adding to your life product portfolio. Perhaps with more income, you have different financial goals you would like to achieve.
Perhaps you take a job that is less pay than your previous one. You will want to make sure you have the right strategies in place to continue with your premiums on your policy. Even if you lost your job, your advisor has options to help you manuever through tough times. A participating whole life insurance policy can serve as a secure savings vehicle for creating an emergency fund you can fall back on, such as during the Covid-19 shutdowns.
6. You’ve invested in a great opportunity, added debt, or taken out a loan
If you haven’t acted yet, please talk with us first! We can give you some insight into whether what you are looking into is a good investment opportunity (even if it’s outside of our product range) or something that will be adding debt. It all impacts your financial plan. We’re here for you! Any changes could impact your financial strategy and your life insurance policies. That is why it is best to chat with your advisor to make any adjustments if needed.
Of course, we encourage our clients to use the cash value in their dividend-paying whole life policies to self-finance big-ticket purchases before taking out a loan from a bank or lending institution or using credit cards. It’s usually in your best interest to use your money first, though using a credit card and then paying it off with your policy loan is also an option! Besides, the bank wants all kinds of financial information from you!
You may even want to borrow from your policy to invest—in that case, you really should speak with your advisor first. An equity loan from your insurance policy is as quick as a phone call with your advisor. Just fill out a policy loan request form, and within 10 to 15-days funds, will be delivered to you. Simple!
Even better, the money in your cash value continues to multiply with uninterrupted, compounded growth like you never borrowed from it in the first place, and you’re able to recapture interest you would have otherwise paid out to banks, lending institutions and creditors. We also work with our clients to find solutions to help them use their whole life insurance policies as a tool to pay off and eliminate debt, not accumulate more debt.
7. Your beneficiary passes away or changes.
You will want to change your beneficiary if you get married or divorced or your beneficiary changes their name or sadly passes away. If you become engaged or married, you may want to name your fiancé or spouse as your beneficiary. If you get a divorce and your spouse is your designated beneficiary, you may want to choose your children or parents as your beneficiaries instead. Some clients also might choose a charitable organization as their beneficiary. There are many reasons a beneficiary may need updating. Sometimes it’s a simple change that only requires contacting our office and filling in a Beneficiary Change Request Form but sometimes, clients feel more comfortable reviewing with their advisor first.
8. You’re close to retirement.
If you’re ten years or less to retirement, it’s the opportune time to review your life insurance policy; permanent insurance policies such as dividend-paying whole life insurance can serve as a vehicle for supplemental income during your retirement years.
Also, if you are a business owner, start the retirement conversation early as possible. There are ways to create higher retirement income while running your business by leveraging the benefits of a corporate-owned dividend-paying whole life insurance policy. For example, you can apply for a Corporate Preferred Retirement Solution plan through Equitable Life of Canada. A Corporate Preferred Retirement Solution gives you the ability to redistribute excess surplus into a corporate-owned whole life insurance policy instead of taxable investments, to reduce corporate taxes and increase cash flow in retirement.
9. Your health status has improved.
If you were issued a life insurance policy with a rating for health reasons, and your health status has since improved, you should let us know. There is an opportunity to have the rating on your life insurance policy reconsidered and potentially removed if you meet the criteria within a given time-frame. Two of the most common health improvements reviewed are weight loss and blood pressure; a lower rating can result in you paying lower premiums.
Mental health postponements can also occur, which means there may also be a possibility for you to get a life insurance policy if you are no longer on medication for mental health reasons or you’ve completed treatment or therapy.
Having a smoker status on your policy translates into paying higher premiums. Smoker status is not a rating. However, if you have quit smoking for 12 consecutive months, you may be eligible for non-smoking status under specific life insurance plans if you meet certain criteria. You must notify us and apply to change your status. A change to non-smoker status could result in a reduction in your premium payment.
10. You’re starting a business.
Do you already have a personal life insurance policy to protect your loved ones but want to start a new business? Consider purchasing additional life insurance coverage designed to protect your business interests. Corporate whole life insurance policies, for example, are an excellent asset on the company balance sheet.
These types of policies gift you with many benefits as a business owner: protecting your business by leveraging your cash flow, paying off debts more effectively, funding buy-sell agreements, key-person insurance, using a corporate whole life policy to build a pension fund for shareholders, as a source of business capital to finance business expenses and facilitate expansion needs, and, something most people don’t want to talk about, providing funds so your business can keep operating if you pass away.
11. You’re selling a business.
If you are selling your business, your whole life insurance policy could be the perfect vehicle to warehouse the net proceeds from the sale of your business to grow both your wealth and retirement income! Distributing the net proceeds from the sale of your business into a corporate whole life insurance policy can also allow for your premiums to be paid longer. Paying premiums longer boosts both the death benefit and the cash value, which are advantageous for estate and retirement planning.
12. You’re taking care of aging parents.
If you are part of the sandwich generation, you are likely raising children at home while providing financial support to your aging parents. We often hear jokingly, “We saved middle-aged people from their parents!”
Aging parents need additional care, and that care can be very pricey if parents haven’t saved up enough money. So, who does the financial responsibility of caring for them fall on? You!
And what would happen if you should pass away before your parents? It would be unfortunate for them and you, but it can happen. Your parents would still require ongoing care, including monetary support—a life insurance policy can provide the funds necessary to ensure they have the care and financial support needed in your absence. These types of life scenarios are something you should also consider in determining how much life insurance coverage you need.
There could be other scenarios that could prompt a reason for reviewing your life insurance policy and financial strategy. If in doubt, get in contact with us right away before you make any decisions so we can help answer any questions you have. And although a 6-month policy review is our recommended time frame, you should at least schedule a policy review with us annually.
Any life change you go through creates ripple effects on you, your loved ones, your business interests, and your finances. By conducting regular policy reviews with us, we can help minimize the impact life’s challenges have on you while maximizing life’s opportunities. Your success is our success—Financial Control For Life also includes regular policy reviews!
Disclaimer: The material provided in this newsletter is for informational and/or educational purposes only. The information, opinions and/or views expressed in this newsletter are those of the authors and not necessarily those of the distributor. All financial endeavours should be vetted through a financial professional: life insurance broker, financial planner, accountant, lawyer, and/or other professional, as the reader, sees fit. MacDev Financial Group Corp., SET Financial Solutions Inc., including but not limited to its agents, staff, associates and/or partners will not assume any liability for any information printed in this article; indirectly, or assumed. The MacDev tagline, “Financial Control For Life” and “Bank On Whole Life” are trademarks of the MacDev Financial Group Corp. Click Legal for further information.
*This stat was of 2018 so total costs with current inflation rates are probably higher.