Time to revisit your clients’ life insurance coverage

Reach out to clients to review their coverage before term policies lapse (AI-generated image)

By Brian C. Large

September is Life Insurance Awareness Month, making it an opportune time to revisit clients’ existing life insurance strategies. Clients without adequate coverage typically fall into one of two camps: those with no life insurance at all, and those whose coverage no longer meets their current needs.

A simple question I ask my clients is this: If you retired today, using only the assets you currently have, would it be enough to maintain your family's lifestyle? For some families, the honest answer is no, and that is often a helpful way to illustrate what life insurance is intended to protect against: a family's ability to maintain its footing if an income stream were to stop unexpectedly.

When coverage quietly lapses

When I think through why clients lose track of a term policy's expiration date, it may come down to a gap in communication. If an advisor isn't conducting regular reviews, there's often no other prompt in place to reevaluate coverage. Carrier practices vary, too; whereas some send an annual statement, others simply send a bill, and it isn't always obvious to a client when a policy was issued or when it's set to expire.

In another instance, clients may buy a 20-year term policy assuming they won't need coverage once it's up, then the 20 years pass, and it turns out they still need it. Since they didn't address it proactively, they're now buying new coverage at significantly higher rates, hoping their health cooperates. Health and insurability often change over time, and this can affect coverage availability and cost.

The importance of periodic coverage reviews

Having an annual review with clients is one of the simplest ways to prevent a policy from lapsing unnoticed. My team flags any client whose term policy is set to expire in the coming year, giving us a full year of runway to reevaluate coverage. From there, the decision to obtain a new policy to extend the coverage five,10 or 15 years, convert the coverage to a permanent policy, or let it lapse intentionally comes down to a minimum needs analysis. That means sitting down and figuring out what it actually costs to run the client's life - the mortgage, property taxes, the kids' activities, the cell phone bill, all of it - since those expenses don't disappear if an income-earning spouse passes.

We then factor in outstanding debt, whether a surviving spouse would want the mortgage paid off outright, and any balances, like credit cards, that shouldn't be left behind. If there are children, we also run a college funding analysis, comparing what tuition will cost against what's already saved, to get a present value of the shortfall.

Life events are inevitable and they impact coverage needs

Certain life events also merit a deeper client conversation even when a policy hasn't technically expired, including the birth of a child, a home purchase, new debt or stepping into a caregiving role for a family member. Each of these may tip the scale on that minimum needs analysis, making it a natural point to run the numbers again.

When a client's net worth or health picture changes, they might consider converting from term to permanent insurance. Many term policies allow a client to convert some or all of the coverage to a permanent policy, at any point before the term ends, without new medical underwriting. Conversion terms and deadlines vary by carrier, so it's worth confirming a client's specific provisions as part of any review.

If a client converts to permanent coverage, it's also important to discuss long-term care riders. A long-term care rider may help provide flexibility when planning for potential long-term care expenses. Whether it's the right fit for a given client depends on family longevity, cash flow and the specifics of their policy.

It doesn’t have to be too late

Even later in life or with a complicated health history, coverage options may still be available, depending on individual health circumstances and carrier underwriting requirements. In one recent case, a client whose term coverage had expired explored replacement options despite certain health considerations and reviewed alternatives with multiple carriers. Some health history complicated things, but because we shopped across several carriers, he still found a workable option.

With it being Life Insurance Awareness Month, checking in on your clients’ coverage can be as simple as picking up the phone and asking what has changed since your last talk. Our value as advisors often lies in keeping an open line of communication year after year, so any coverage gaps can be assessed early on. That kind of ongoing relationship and client-focused approach keeps a client's protection matched to the life they live today.