How to Manage Life Insurance Coverage as You Grow Older

Your need for life insurance may decrease over time, allowing you to reduce or eliminate insurance premiums and benefit from accrued cash values.

Difficulty: Moderate

Instructions

Things You'll Need:

• Financial Manager
• Paper And Pencils
• Personal Financial Software

Eliminating or Reducing Term Coverage

1. Stop making premium payments on any term coverage that is no longer necessary for your designated beneficiary.

2. Reduce the death benefit of a policy if some coverage is still needed.

3. Call the customer service department of the insurance company's home office and ask for the necessary forms to effect either change.

Maintaining Coverage With No Further Premium Payments

4. Find the insurance policies (and latest annual statements) on which you are still paying premiums and for which you are the owner.

5. Separate term policies from permanent policies (ones with cash values), and set the term policies aside.

6. Write down, on a separate piece of paper for each permanent policy, the name of the insurance company that issued the policy, the phone number of the company's home office, and the policy or contract number.

7. Call the customer service department of each insurance company and ask the representative to send you an "in-force policy illustration" showing the effect of no further premium payments.

8. Document your call, noting the date, time of day, full name of the person to whom you spoke, and his or her direct phone number or extension.

9. Call the customer service department again to discuss your options after you get the illustration in the mail.

10. Stop making premium payments if you determine that you no longer need the coverage or if you can keep some or all of the coverage in force with the cash values of the policy.

Exercising the "Reduced Paid-Up Insurance Policy" Option or the "Paid-Up Term" Option if Available

11. Contact the customer service department at the home office and ask the representative to calculate a reduced paid-up insurance policy based on current policy values.

12. Factor the lower death benefit of such a policy into your retirement and estate planning.

13. Fill out the necessary forms to allow the company to issue you a new permanent policy.

14. Exercise the paid-up term Option if available. Determine if your policy provides a paid-up term option, and calculate how long the term coverage will actually last.

15. Choose this option if your insurance needs do not exceed the period of extended term coverage.

Tips & Warnings

• A reduced paid-up policy option may be one of the guaranteed benefits of your whole life or universal life policy.
• Choosing this option provides a lower guaranteed lifetime death benefit to your beneficiary and eliminates the need for further premium payments.
• A paid-up term policy allows you to stop making premium payments, yet still provides a death benefit to your beneficiary.
• Reduced paid-up insurance policies do not have a cash value against which loans can be made.
• Once chosen, this change is permanent and irreversible.
• The death benefit of such a policy will be significantly lower than that of the original policy.
• This option is not available for all permanent-type life insurance policies.
• Loans against cash values may not allow such an option to be exercised until they are paid in whole or in part.
• Paid-up term policies are permanent and irrevocable and provide no cash values.
• Loans cannot be made on paid-up term policies.
• Insurance coverage terminates at the end of the term and cannot be renewed or extended.

[purrformer]

on 5/2/2008 Unless you happen to be an insurance expert (and the average person reading this isn't) you won't necessarily understand that
a) term insurance never has a cash value
b) the "reduced paid-up" and "extended term" options are only available with permanent/whole life insurance.

A lot of people may not even understand the difference between term and whole life insurance or know which type they have, especially if they are covered under a group plan.

A far better way to address the whole issue would be to sit down with a good financial planner and have him/her determine if you are over-insured and if so, what your best approach to the situation should be.