Yesterday I offered a self evaluation on how well you know your own life insurance. Today I promised to tell you where you can find the answers.
It doesn't matter what kind of life insurance you own. Periodically you need to ask your agent (or the company) to provide you with an inforce illustration. These are just like the ledgers an agent may show you before you purchase a policy but now, since the policy is in force, it starts with the policy's current values.
All life insurance illustrations show a "current" scenario and a "guaranteed" scenario.
The current inforce scenario starts with the current policy values and assumes future premium payments will be made as planned. Interest rates, insurance charges and other fees/costs will be projected to remain the same as they are now.
The guaranteed inforce scenario starts with the current policy values and also assumes future premium payments will be made as planned, but the interest rate is lowered to the contractual minimum while the insurance charges, fees, and costs are raised to the contractual maximums. In other words, the guaranteed scenario is the worst case situation.
If the policy pays dividends, the current scenario assumes the dividend scale will remain unchanged but since dividends are not guaranteed, the guaranteed scenario assumes no more dividends will ever be paid.
When reviewing your inforce illustration, pay extra attention to the death benefit. If at any time the death benefit reaches 0, that means the policy has lapsed. If the death benefit is gone, I would bet the cash value is gone too. That leaves you with no residual value and no future benefit.
Also look over the premiums. Is there a change in premium? Has the assumption been made that you will increase (or decrease) your premium in the future?
Always remember that illustrations are projections. Unless the insurance company is already at minimum interest and maximum charges, the policy has potential to perform better than the guaranteed scenario but current projections could end up being better or worse than policy will actually perform. Personally, since I do not believe in life insurance as an investment, I tend to focus on the guarantees. Anything that happens better than that can never hurt.
Inforce illustrations also offer the ability to ask "what if?". For example, ask the agent (or company) to re-run the inforce illustration if you stopped paying premiums when you now, or when you plan to retire. You could even ask them to calculate the premium required for you to stop paying the premium in a particular year but still have a guaranteed death benefit.
Reviewing the inforce illustration every five years or so will keep you aware of any issues with your life insurance while you have enough time to prevent the problem.
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