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​The High Cost of Avoiding Insurance Reviews

​By Jim Van Eperen, VP Executive Benefits and Business Succession, Raffa Financial Services, Inc.​

Every year, we make a habit of touching base with our clients that purchased their insurance through us.  We have found that it is a great practice that can save our client’s money and help to ensure that their insurance is tailored to their current needs.  Most appreciate the service and get comfort from the process.

I am often reminded how quickly things change and how the changes in life can impact their planning and insurance.  As a result, I encourage you to take advantage of this free service from Raffa Financial Services:  we will review your insurance coverages, even if you did not purchase it from us.  We can perform this service without a long meeting and without hassle.  You can see below how to merely send in a copy of your existing policies and we will provide you with a written synopsis of our findings.

There are many common reasons that make these reviews very beneficial.  I will itemize several here so you can watch out for these circumstances.  The list of predictable life changes we see include: a new marriage, new child or grandchild, divorce, a new home or job, a promotion or raise, as well as a loss of a job, death of a beneficiary, or any of a host of other events.  While I strongly recommend that you review your coverages regularly, these life changes should certainly trigger a review.  I am always amazed by the major improvements we are able to discover while conducting reviews.  It is one thing to want to avoid meeting an insurance salesperson but anyone that is already paying for coverage should want to ensure they are getting the best deal they can.  In the cases below, we were able to help our client save tens of thousands of dollars in planned expenses or increased their benefits by over a million dollars.  These dramatic improvements are more common than you may guess!

There are several easy to describe examples of extraordinary improvements that we have been able to make as a result of a simple insurance review.  The one I want to begin with is regarding a longstanding client of the firm.  Sam* purchased some insurance through us and had a couple policies with other agents too.  I met Sam when he called to say that his youngest child had just graduated from college and he wanted to know if he should keep the insurance he had in force.  He originally bought the insurance to pay off the mortgage and ensure his kids could go to college. Those goals had been accomplished and he explained that he wanted to find a few extra dollars to add to his savings before he retires.

When we talked, I learned that Sam had 3 expensive whole life policies that totaled one million dollars of coverage and an additional $500,000 of term that had a level premium for the past 18 years. However, after just two more years his cost for that term plan would skyrocket from $1,288 per year to over $23,000.  It would even increase further every year after that.  Sam is 61 years old and plans to retire in 3-5 years.  He is not sure if he has enough saved to maintain the retirement needs for himself and his wife.  She is 4 years younger, and women live 7 years longer than men on average, which suggests that he needs to provide her retirement income 11 years after his own.  He was concerned about health care expenses but was not interested in buying a stand-alone Long Term Care policy due to the expense.

After conducting a retirement income analysis, Sam saw that he probably had just enough saved as long as there were no unforeseen expenses or extra money spent on travel or other “fun expenses.”  He decided he wanted to keep his life insurance for a different reason than the original reason he bought it.  He concluded that if they spent a little extra money each year while he was alive, his wife could get her retirement savings replenished by the life insurance.  Rather than keep the combination of polices he had, we consolidated all of them into a new plan.  Instead of paying for whole life, which built up substantial cash values that he did not need, he merged the plans into a single plan that operates much like term insurance without the surprise premium increase.  He was able to maintain the same $1.5M of coverage and he reduced his annual premium from over $14,000 per year to just over $3,000 per year.  The premium is guaranteed not to increase and his coverage is guaranteed not to decrease until his age is 100!  Sam was thrilled.  On top of this exciting news, the new insurance company also allowed us to add a provision for Long Term Care expenses.  As a result of this rider, he can access up to $1M of the policy benefits if he needed to go into a nursing home or pay for the expense of care brought into his home.  Sam and his wife were both elated with the dramatic improvements we made – and we reduced his cost by $11,000 per year.

These circumstances may seem unusual but we are oftentimes able to help clients improve their existing insurance and/or cut their costs.  The latest advancements in insurance policies have taken an old industry by storm. The insurance market now barely resembles the industry I came into at the beginning of my career.  Today MET Life is no longer selling individual insurance and has sold off their team of agents.  Many of the oldest companies have been sold or have gone out of business and the new names that have become most competitive are anything but household names.  (Symetra, Aviva, AXA).

Another client was recently shocked to see his group term life through work jump up in cost.  Generally, group term is very inexpensive, though it provides for premium increases every 5 years as the employee gets older.  As a result, group term is often an economical alternative for younger buyers of insurance.  It is very expensive for those approaching retirement.  Jack* is a client of the firm that bought some of his insurance through the group plan at his office.  He has a substantial need for coverage and received the maximum they would allow, being $3M of coverage. 
Jack’s fixed premiums are as follows:

Annual Premium Year Group Term Life Insurance New 10-Year Term Insurance

Jack is in excellent health and group plans rarely reward those that maintain healthy habits.  As a result, we showed him that he could replace the exact same amount of coverage with a new policy where the premiums are guaranteed to remain at $13,074 for 10 years.  That resulted in a premium savings for Jack of nearly $220,000 over just the next decade.  What’s more, if he wanted to keep the group term coverage beyond retirement, his coverage would be dramatically reduced and his rates would jump even further.  The new policy does not have any of these undesirable features.

In summary, I recognize that reviewing your insurance may seem about as enjoyable as watching paint dry or organizing your sock drawer.  Nevertheless, there are very important reasons to make sure you are getting the most for your premium dollars.

To make this as easy as possible, we are offering a free service where you can receive a written review and analysis without even having to arrange an appointment.  Merely send us your statements for your existing insurance and tell us a little bit about your health as well as what your priorities are.  Please include your phone number so we can ask a couple questions if needed and you will get a free analysis back from us promptly.  Just send your statements to Raffa Financial Services to Wendy at wendy@raffafinancial.com and feel free to call us at (240) 386-1890.  If you prefer a more traditional consultation, we are also happy to meet and answer questions.  There are so many potential improvements and we are trying to make it as easy as possible for anyone to take advantage of the opportunities. 

*Name has been changed to protect the individual’s privacy.