When most people buy a life insurance policy, they will invariably stash the paperwork in a drawer and probably never even think about that policy again. “I have a life insurance policy – no need to worry about that anymore”. Unfortunately, way too many people have had this attitude and come to regret it. I think the biggest mistake most people make is that they forget that all life insurance isn’t the same.
There are several different types of permanent and temporary life insurance policies – and many people forget what they originally purchased. It’s important to know that many life insurance permanent policies are NOT structured to be on auto-pilot for 50-60 years and be set to automatically pay your beneficiary whenever you pass away. If you happen to own a whole life Insurance policy then your contract may be in fine shape. The problem is many folks THINK they bought whole life, but they really own some other type of permanent life insurance. And if you have permanent life insurance that’s not whole life, there’s a chance it’s not in fine shape.
You see, other types of permanent insurance – called universal or variable life insurance – are based on certain economic assumptions – and if you bought your policy 15, 20, 30 years ago – there’s a real chance those assumptions may not have come to fruition. And if they didn’t, then your life insurance policy may be in jeopardy of lapsing without you being aware of it. Now, I’m not saying that all of these policies are underperforming and thus in jeopardy, but I am saying that you need to dig that policy out of that drawer and review it with an advisor or the insurance company. Now, another common problem is that folks think they bought permanent life insurance, when in fact, they actually bought a term life insurance policy. Term insurance – which is temporary life insurance – covers you for a specified period of time – 10, 20, 30 years – and by design it ends when those years are up. Other times, people have purchased a policy that is structured to expire when the person reaches retirement age – and they don’t realize it.
In all of these cases, these are policies that folks have been paying into for years and years, expecting them to pay out when they pass away. When, in fact, these policy owners are discovering that this is not the case at all – and that their life insurance is dropping off at a time in their life when it could be difficult and expensive to get a new policy. So again, dust off that policy you bought 15 or 20 years ago and take a look at it. If you catch the problem early enough – there’s a good chance you can fix it.