The Hidden Dangers in Your Life Insurance Policy Could Be Costing You Thousands
How an Annual Review Can Save You Money and Secure Your Financial Goals
Most people treat life insurance as a set-it-and-forget-it asset. Many agents never even see your policy again, much less analyze its performance, after it's taken out, leaving the policyholder to try to decipher the complicated in-force projections and opaque policy statements. And this is assuming the policy was tailored for client goals in the first place, which in many cases, it was not. Even when properly tailored, permanent life insurance policies require regular reviews to align with evolving financial goals, keep up with product innovations, and ensure it’s performing as projected. Without an annual review, policyholders may be at risk of paying more than necessary, missing out on better coverage options, or holding a policy that no longer supports their evolving needs.
The Three Hidden Dangers of an Outdated Policy
1. Product Innovation Creates More Cost Effective Options For Goals
Did you know that costs for the same product can vary by up to 60% between different carriers? Carriers constantly adjust pricing, introduce new products, and improve policy structures. Yet, the majority of agents and advisors never proactively analyze existing policies to compare them with newer, more efficient options. This is not to blame advisors of any kind. Without the technology, the ability to quickly review a policy’s performance, and then compare it against other options in the market, was impossible. Agents and advisors are overwhelmed with data and knowledge, and the limited training for the limited product set no longer suffices.
Policyholders end up overpaying for their policy because they aren’t aware of newer products that could provide the same (or better) benefits for their goals more cost effectively. The ripple effect is such that fewer people believe the costs justify benefits. A study by LIMRA found nearly half of people who do not own life insurance say they think life insurance is too expensive, although 72% overestimate the costs and 30% of younger Americans are likely to think it is three times its actual cost. There are few other products on the market today that consumers underestimate its evolving versatility and overestimate the cost by such a wide margin. This is why we built the technology to automate policy reviews, helping advisors and policyholders ensure the policy is not outdated or costing them too much when better options are available.
2. Market and Interest Rate Fluctuations Impact Policy Performance
Permanent life insurance policies, particularly Whole Life and the Universal Life products, are heavily influenced by interest rates and market conditions. Many policyholders assume their policy will perform as projected when they first purchased it, but performance can deviate significantly from the projections over time. Regular reviews allow the policyholder to track performance against the projections over time, and stay ahead of any risks and, when needed, convert the policy into a more optimal one.
Universal life insurance policies, most commonly indexed against the S&P 500, have cap rates—usually between 8-10%. Where many policyholders run into trouble is when the market doesn’t grow. Typically the policy floor is 0%, meaning cash value is not lost, but the policyholder must pay into the cash value of the policy and not receive anything in return. Without an annual review, policyholders may unknowingly expose themselves to unnecessary risk, resulting in underfunded policies, unexpected premium increases, or even policy lapses.
Regular reviews allow policyholders to make adjustments. However, the performance analyses can be confusing, time-consuming, and full of jargon even for the most sophisticated investor. The fine print in every policy can create traps over time, policyholders and advisors alike may not prioritize this review frequently enough to stay ahead of those traps. Our technology automates the review in order to get ahead of any risks before they become problems, helping advisors get ahead of client care and potential optimizations.
3. The Policy Should Be Optimized To Life Stage, As Goals Evolve
A life insurance policy that was optimal five or ten years ago may no longer align with the policyholder’s current lifestage and financial goals. Major life events such as marriage, having children, buying a home, or retirement can significantly impact the amount and type of coverage needed. Depending on the amount of years the policyholder expects to work and accumulate their wealth, they might want to tailor for more potential upside by inviting more risk. Later in life, many policyholders convert into a policy with guaranteed growth and less risk—for a more protection-oriented portfolio. Oftentimes, achieving your financial goals through other investments, experiencing a large windfall, or benefiting from a large inheritance means people can shift to a more protection-oriented portfolio.
According to a Forbes survey, 63% of policyholders have never updated their life insurance coverage after a major life event. This means that many individuals are either underinsured or overinsured, leading to financial inefficiencies. The annual professional review ensures that your policy continues to support your evolving financial goals, retirement and estate planning strategies.
Who Should Review The Policy, and How Often?
At Optifino, we believe that an annual policy review is essential to elevating and securing your financial future. This is why empower both advisors and policyholders to review the policy and identify the best option. Our platform creates tech-powered, objective policy analysis, compares it against newer products, and identifies any opportunities for optimization—backed by our own team of experts. We are always adding new product innovations from the marketplace, and learning in real-time the best-in-class products for distinct goals and demographics. If a better solution exists, we help facilitate the transition seamlessly. If a policy is five years old or more, there are likely better products for the policyholder, and those policies should be prioritized for review.
Schedule a review with Optifino today and ensure your life insurance continues to work for you, not against you.