Your Old Insurance Policies

Recently I sat down with a 58 year old male executive to discuss his insurance policies. I was shocked to find out that he owned 16 life and disability insurance policies. The amount of money that he was paying in premiums each year was so large that it was harming his ability to properly save for retirement.

After we completed a proper insurance needs analysis that considers his net worth income, taxes, cash flows and goals, we both agreed that his need for insurance was far less than what he had been sold.

When asked how he came to own so many policies, he said it was over reliance on an agent who befriended him and just kept recommending he buy more and more and more.

What to do with old policies
Get a second opinion from a different agent than the one who sold you the coverage – this may provide a more objective analysis.

Realize that you have 4 options to deal with old policies:

  1. Leave them as is. Many old permanent policies are inexpensive and provide good coverage.
  2. Cancel the policy. If the coverage is no longer needed and the premium money can be better used elsewhere. Make sure there are no hidden fees to cancel the coverage.
  3. Convert permanent policies to term insurance. This option should be contemplated after a proper needs analysis to determine if term coverage is more appropriate.
  4. Convert all or a portion of term policies to permanent insurance. This option should be considered after a proper needs analysis to determine if there is a need for permanent coverage.
  5. Convert an existing permanent policy to “paid up”. If there is a cash value attached to the policy, you may be able to shrink the size of the policy, stop paying premiums, while keeping the policy in place.
  6. Replace your old term policy with a new medically underwritten policy saving you thousands of dollars in premium costs over time.

In the case of the 58 year old executive mentioned above, we are cancelling some of his old policies and changing others. At this stage of his life the money spent on premiums is better used on his retirement. His children are long gone, his retirement saving are strong and he simply doesn’t need all the coverage, nor the specific types of insurance he has.

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