One of the considerations when you are putting together a life insurance program or portfolio should be flexibility, a way to deal with the “what ifs” in life.
I’ve seen this a little more than usual as people have dealt with different aspects of the recession. They put a policy in force prior to the economic meltdown that, if there hadn’t been a meltdown, would have been just fine. With everything getting tighter, suddenly the once budgetable premium on that $2,000,000 policy isn’t working anymore.
The first thing to look at is the mode you are paying. Most companies offer options of paying annually, semi annually, quarterly or monthly, monthly almost always being done by automatic bank draft. Can changing you modal premium from annually to monthly solve the issue? I know if I was facing tough times and got a bill for say, a $5000 annual premium I would probably been inclined to cry. But if I could change to monthly and pay a little over $400 a month for a while (or from now on), that might be a way to save the day and keep the insurance in force just the way I want it.
Now I know this is crazy, but a lot of companies won’t let you alter a policy once it is in force. In other words, if you decide that you can really be OK with $1,000,000, will the company allow you to cut the amount of coverage in half. I just did this for a client with Prudential and they were very gracious about it. I tried the same thing for a client not too long ago with AIG American General and they wanted the client to apply to have the face amount of his policy lowered, exam and all. When we ran into that I suggested that if an exam was required, let’s shop it and see if AIG was really the best bet at that point anyway. Turns out they weren’t and because they weren’t flexible they lost the business.
A way to proactively pave the way for this possibility is to take out more than one policy. I encourage a lot of clients to do this if they don’t believe they will need the full amount for the full term length, or at least they’re not sure. Instead of a $2,000,000 20 year term, why not two $1,000,000 20 year terms, or a $1,000,000 and two $500,000 term insurance policies. The very small downside to this approach is that each policy has an annual policy fee of $50-$75, so if you have multiple policies you could be paying slightly more. Transamerica has just put a program in place where if you do what I just described they will only charge one policy fee and give you the advantage of any price break that the total face amount might bring. Even without that advantage, multiple policies is still worth considering.
Bottom line. If it can be helped, don’t back yourself into a corner where a budget busting event can leave you making a choice to go completely without life insurance.