Life insurance can play an important role in a client’s financial plan. But the reasons for owning a policy can change over time.
A client who purchased coverage years ago to protect their family, support an estate plan, or meet a business need may eventually reach a point where that coverage is no longer necessary.
When that happens, advisors should consider another important question: What is it costing the client to keep the policy?
At Abacus Life Solutions, we believe evaluating an existing policy should include both its potential value and the ongoing cost of maintaining it.
The Cost Goes Beyond the Premium
Premiums are the most obvious cost of maintaining life insurance, but they are not the only consideration.
For a client in retirement, every dollar committed to an unnecessary policy is a dollar that cannot be directed toward another financial priority.
Those funds could potentially be used for:
- Retirement income
- Healthcare or long-term care expenses
- Investments
- Family or charitable goals
- Other financial needs
This opportunity cost becomes increasingly important when premiums rise or a client’s income and priorities change.
Does the Original Need Still Exist?
Before deciding whether a policy is still worth maintaining, advisors should revisit why it was purchased in the first place.
Perhaps the policy was intended to replace income while children were financially dependent. Maybe it supported an estate plan, business succession strategy, or another need that has since changed.
Consider asking:
- Does the client still need the death benefit?
- Are the beneficiaries still dependent on the coverage?
- Have estate or legacy goals changed?
- Are premiums becoming difficult to justify?
- Could those dollars serve a more important purpose elsewhere?
The goal is not to assume an older policy is unnecessary. It is to make sure the reason for keeping it still aligns with the client’s financial plan today.
Keeping the Policy Is Not the Only Option
If the coverage no longer makes financial sense, clients may assume their choices are limited to surrendering the policy or allowing it to lapse.
For eligible policyholders, a life settlement may provide another option.
A life settlement allows a policyholder to sell an existing life insurance policy for a lump-sum payment. The buyer assumes responsibility for future premiums and receives the death benefit when the insured passes away.
For qualifying policies, the proceeds may exceed the policy’s cash surrender value while also eliminating future premium obligations.
Look at Both Sides of the Equation
When reviewing an existing policy, advisors should consider both sides of the decision.
What value is the policy still providing, and what is the client spending to maintain it?
For some clients, continuing coverage will remain the right choice. For others, changing financial priorities and ongoing premiums may make it worth exploring alternatives.
A policy valuation can provide additional information before the client makes a final decision.
Is the Policy Still Worth Keeping?
Life insurance should continue to serve a purpose within a client’s financial plan.
If that purpose has changed, advisors have an opportunity to revisit the coverage, evaluate the ongoing cost, and make sure clients understand all of their available options.
Before your client pays another year of premiums on coverage they may no longer need, consider finding out what the policy could be worth.
See What Your Client’s Policy Could Be Worth
If a client is questioning whether an existing policy is still worth maintaining, a policy valuation can help inform the conversation.
