Six Reasons to Replace Old Health Insurance With New

Armen Hareyan's picture

Long Term Health Care

Do a Personal Insurance Audit Now. Just like autos, new insurance policies are greatly improved over 10-year-old polices. Many now deliver more protection for less money. Individuals often continue to pay for insurance protection that is no longer needed and are under-insured in other areas.

Anybody who owns a life insurance policy they bought 10, 20 or even 30 years ago, may be overpaying for insurance benefits they don't need.

"Unfortunately life insurance companies and their agents seldom suggest changing outdated policies. Keeping old policies on the books can be more convenient and profitable," says Paul J. Mauro CLU, CHFC and CEO of Legacy Financial Advisors in Milford, MA.

"Since we now live longer, the mortality tables life insurance companies use to establish premiums have grown more favorable to consumers. Insurers are also developing products in response to demographic shifts, especially products for the growing number of 50 to 65 year old baby boomers," explains Mauro.

Mauro, an independent financial advisor with three decades of experience, helps clients examine their overall financial situation before selecting insurance coverage from a broad range of qualified companies and products. Paul J. Mauro's urges consumers to ask six questions before changing or buying life insurance.

1. Are current policies more than 10 years old? Since insurers revise mortality tables periodically to reflect how long people are really living, the existing policy may be overpriced. "A 50-year old today can buy a 20-year term life insurance policy for less than what a 40-year old had to pay for identical coverage only a few years ago," says Mauro.


2. Am I nearing retirement? Those about to retire on a pension plan are typically given a choice between receiving full benefits that stop when they die, or lower monthly payments in exchange for "survivor benefits" that continue until their spouse dies. "Instead of reducing pension benefits, it may be cheaper to replace existing life insurance with a new policy sufficient to cover your spouses living expenses should you die first." Those who are depending on 401(k) or IRA plan assets to cover retirement may want to drop life insurance policies altogether and replace them with annuities that provide a monthly benefit to both husband and wife for as long as they live.

3. Did I borrow against the cash value of my life insurance policy? Anyone who owes money on a life insurance policy loan can be in for a shock if they do not cancel or terminate the policy correctly. "Almost daily, clients tell us that when they cancelled the policy, their insurance company reported the proceeds from an unpaid loan to the IRS as income. This resulted in having to pay taxes on money spent long ago." This problem, known as phantom income, can be eliminated, but not after the fact. Life insurance products that extinguish the outstanding loan are available. Despite the increasing number of insurance policy holders who owe money on these loans and are moving toward a tax explosion, the industry is doing little to inform them about ways avoid income taxes on this phantom income."

4. Is a cash value policy sorely outdated? Life insurance products - especially so-called variable life and universal life - have been markedly improved. More investment options have been added. Internal costs for management and other expenses - paid by the consumer - are often lower in new policies. "In particular, drop policies from financially troubled insurance companies that have increased internal costs to cover a financial shortfall," urges Mauro.

5. What about the need for long term care insurance? There are several ways to protect against the financially ruinous burden of paying for long term care. Among them are new policies that combine both death and long term care benefits. A combined policy can provide, say, $500,000 at death and $250,000 for long term care more economically than having two separate policies. "If you buy a policy that pays both death and long term care benefits you can be sure someone will collect from that policy someday," quips Mauro.

6. Have my needs changed dramatically? Says Mauro; "Those who have closed a business, divorced, or paid off a mortgage, may still be paying for life insurance they no longer need. As a bonus, consumers may get a significant payment from the insurer when they cancel. Surprisingly, some polices are worth more than their cash value when cancelled through a life settlement company.

Where to get advice. Says Mauro, "Insurance agents and brokers can help, but beware of those who steer customers to a particular company or are less than forthcoming about changing an existing policy. Independent financial advisors focus on overall financial health and are able to select products that best serve their clients without allegiance to specific companies."

Legacy Financial Advisors Inc. ( has three decades of experience helping families plan for aging. Paul J. Mauro, CEO, was featured in the PBS special "And Thou Shalt Honor." Legacy has extensively used the new products and plans that are referred to as "Principal Protected Investing" recommended in the Ernst and Young LLP in a white paper on the changing face of the industry. Legacy Financial Advisors Inc. has six offices in Massachusetts; Milford, Duxbury, Yarmouthport, Natick, Peabody, and Braintree and offices along the East Coast. Tel: 800-427-9781.