When most clients think of the word “audit,” they think something bad is coming down the line. The word “audit” typically is used in connection with a tax audit, something every taxpayer dreads. However, an audit is not always a negative event. Audits can be a self-examination or a review of systems that are in place to confirm those systems are doing their job. An example of one such audit that is necessary and beneficial for your clients is an insurance audit.

Providing the Right Coverage Through Life Changes

In an insurance audit, you and your client meet together (with the addition of the client’s insurance agent, if you do not provide insurance solutions yourself) to review the client’s current policies and determine if those policies still provide the type of coverage originally intended. Such a process can reveal changes in the client’s life that could require additional coverage for times when risk has grown, or provide additional opportunities to consider other products or services for your client.

Uncovering Mistakes or Errors

An insurance audit also can uncover mistakes or errors in the client’s plan. As an example, when I recently conducted an insurance audit with a client of mine, we discovered that his life insurance policy had lapsed – over a decade ago. He applied for life insurance through a direct mail application. After the policy began, the company mailed him an additional application for a hospital supplement policy. The client believed that he was paying his life insurance premiums. Every month for ten years he faithfully paid his premiums on time.  It wasn’t until the two of us reviewed his policies, and talked directly with the 800-number call center, that we discovered he actually had been paying on the unrelated hospital policy rather than his life insurance policy. Now, over a decade later, he has aged and his health has declined, making him uninsurable. Although he started the process strong by purchasing life insurance, there was a breakdown of understanding that now has resulted in a loss of security for his family. Had he conducted an insurance audit sooner, we could have corrected the errors before it was too late.

Ensuring Alignment with Estate Plan

Your clients have come to expect meetings with you for a financial review every year or so, but most clients do not necessarily believe they need to review life insurance policies after they have been purchased. Clients tend to believe that life insurance is a “set and forget” tool. It is true there are life insurance policies that require very little maintenance over time. However, the current impact of those plans on the total estate plan is important. If your clients have not reviewed their life insurance policies with you in the previous five years, I encourage you to suggest they do so. Scheduled reviews of your client’s insurance policies, as well as their beneficiary designations, will ensure their proper protection, for the client and their loved ones. The day after death is not the time to discover there was no life insurance.


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