How to Review an Insurance Policy
Insurance policy reviews should be part of a financial plan
It is important to review an insurance policy on a periodic basis. All too often we set insurance policies aside in a file drawer and forget that some items in them need to be updated from time to time.
How to Review an Insurance Policy
Either way, start by reviewing the basics:
Type of Policy
Is it health insurance, life insurance, long-term care insurance, disability insurance, property and casualty insurance, or auto insurance? If you are reviewing or summarizing a life insurance policy, specify what type of life insurance policy it is: term life, whole life, universal life, or variable life.
Insurance Carrier
Who is the insurance company that provides the insurance? Keep track of a customer service number you can call, or the contact information for your insurance agent.
Policy Number
You will always need your policy number when you call and ask questions about an insurance policy.
Date Issued
It is important to know the date the insurance was issued, especially when it comes to life insurance, as term insurance has an expiration date, and permanent insurance will have a surrender charge that may apply if you cancel the policy in the first five to 20 years.
Premium Required
Always keep track of the premium you pay and how frequently it is paid. In the case of a whole life insurance policy, the policy could be paid up. In that case, if you were creating a policy summary you would write, “No premiums required at this time as premiums are being paid by the dividends inside the policy.” For other types of insurance, you might list something like, “Premium of $225 per month paid by automatic deduction from checking account.”
Insured
Who do the benefits apply to: you, your spouse, or a dependent child?
Beneficiary
For life insurance, who is the beneficiary? If it is an ex-spouse or a beneficiary designated prior to marriage, contact the insurance company for a change of beneficiary form to get the information updated. A will or trust will not take care of this. You have to fill out the proper form and send it back to the insurance company.
Look at the Details
Once you have the basics down, you’ll want to look at the details of the policy so you understand how the benefits work, and what restrictions may apply. Looking at the details can help you spot areas where you may have duplicate coverage, too much coverage, or areas where you are underinsured.
To conduct a thorough insurance review, make an appointment with your agent and have them walk you through each feature of your policy, explaining when it would apply, how you would qualify, and how much you pay for it.
Below is a brief overview of the details you’ll want to review for each type of insurance you may have.
Life Insurance Policy Review
For life insurance, keep track of the total death benefit, and any additional riders such as a waiver of premium in the event of disability, or the ability to access the death benefit early in the case of being diagnosed with a terminal illness. If you have a term policy, put a reminder on your calendar the year the policy is set to expire. You’ll need to evaluate options at that time and see if you still need the life insurance coverage.
In addition, if your policy has a cash value, track the performance of investments inside it, and call the insurance company to request something called an “in-force illustration.” An in-force illustration will project how the policy should perform from now throughout the rest of your life. If the policy has performed well and is expected to continue to do so, you may be able to forgo premiums. If the policy has not performed well, you may have to pay higher premiums to keep it in force. Reviewing policies on a regular basis can help you anticipate these future changes.
Property and Casualty Insurance Review
For property and casualty insurance, take a look at your total coverage relative to what you own and to your net worth. As your net worth grows, the amount of insurance protection you have should also increase. If someone were to be injured on your property and sue you, would your coverage hold up? It helps to know what items are excluded from coverage. Best to review this with your insurance agent and adjust coverage as needed.
If you run a business out of your home, be sure to bring this up to your agent. Yes, additional coverage may be needed, but it is better to pay a small premium to have things covered than to experience a devastating uncovered loss.
Reviewing policies isn’t exciting, but it is part of a sound long-term financial planning process.