Is a life insurance policy like the family minivan?

Life insurance, like other commodities we own, has a “useful life.” In the same way we question how long to keep a car or when to upgrade an appliance, and we must ponder the utility and lifespan of life insurance policies. For agents and financial advisors, understanding and educating their clients on this concept is pivotal.

The minivan analogy and life insurance

Think about a family minivan. Over time, as kids grow and leave home, the need for the van diminishes. Suddenly, that third row of seats and the extra storage become redundant, much like a significant death benefit insurance policy. For many seniors, life insurance is acquired to protect their families, but as life evolves - children grow up, relationship statuses change or the family structure shifts - the need for that insurance changes with it. The coverage that was once invaluable during their younger years might not hold the same significance in their later life.

Evolution of insurance needs

Besides the change of needs, financial concerns come into play. Many individuals find their policy premiums increasing, making them pay for coverage that's no longer as relevant to their life stage. Similarly, that insurance policy might have been cutting-edge and exactly what the client required when it was initially purchased. Yet, it could be more prudent to transition into a more efficient product with time. This could mean switching from term products to whole life, universal life or even to consider annuities.

The question of planned obsolescence

The elephant in the room is planned obsolescence. Manufacturers historically have designed products, from light bulbs to appliances, with a limited lifespan. This ensures that consumers return for replacements more frequently. Unfortunately, some insurance products are no different. As years go by, premiums can escalate, often making the insurance unsustainable for the policyholder. Such incremental price hikes are a deliberate move by insurance companies to render certain policies obsolete, nudging clients to newer, often more expensive, alternatives.

We believe there are ways around the tricks and tactics that life insurance companies have employed for decades to make their products less valuable over time.

Navigating through life insurance's useful life

How should one approach these nuanced insurance dynamics? A proactive approach is key.

Reassess needs: It's vital for agents and advisors to reevaluate their client’s needs periodically. Situations change, and what was once a perfect fit might now be redundant.

Annual policy appraisal: Undertake regular assessments to understand the current worth of the policy in the secondary market. This could clarify whether it’s time to retain the policy, upgrade it or sell it on the secondary market.

Life settlements: If the costs spiral out of control, making the insurance fiscally unviable, it might be time to consider life settlements. This allows the policyholder to get out from under the financial burden and redirect those funds more productively.

At the heart of all these discussions lies an inescapable truth: Manufacturers - whether of cars, appliances or insurance policies - aim to profit. Although that's the crux of capitalism, clients mustn't be on the losing end. As agents and advisors, emphasizing the importance of a policy appraisal, ensuring the relevance of coverage and offering guidance on potential alternatives becomes paramount. The useful life of a policy may have run its course. Recognizing that is the first step towards better financial well-being for clients.

Wm Scott Page, is a life insurance policy appraisal expert, published author and CEO at policyappraisal.com and WeBuy75.com. He may be contacted at [email protected].

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.