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Why now might be the perfect time for an insurance audit

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From now up until April 18 -- otherwise known as Tax Day 2017 -- most people will be gathering documents to take to their accountants or sitting down at home computers to complete their taxes via user-friendly software.

Given this stressful reality, the very last word that anyone -- from the novice taxpayer to the seasoned tax professional -- understandably wants to hear is "audit." However, some experts indicate that's exactly what needs to take place for individuals in their 50s and 60s during this time of intensive reviews and extreme preparation.

It's important to understand, however, that the audit to which they are referring has nothing to do with the Internal Revenue Service or income taxes, and everything to do with insurance.

Indeed, these experts are urging individuals in their 50s and 60s, who already have their important financial information at the ready, to take a "two birds with one stone" approach and conduct an insurance audit.

In other words, examine whether they are paying too much for certain types of coverage in some areas and/or are underinsured in others in the interests of wealth preservation and risk reduction.

While certain forms of insurance immediately come to mind as perfect for such an audit -- health insurance, homeowners' insurance, etc. -- there are others that may be less obvious, but are no less important.

Disability insurance

In general, disability insurance is designed to cover 60 percent of income up to a maximum monthly payout, with short-term policies running for up to two years and long-term polices running until the age of 65.

If you or your loved ones are dependent upon your income, experts suggest that it may be worth keeping disability insurance. However, they also indicate that its costs may be kept in check by extending the time before which benefits start (i.e., the elimination period) and/or reducing the timeframe over which benefits are paid.

Life insurance

While the natural temptation among older adults might be to reduce or even eliminate life insurance given their age, experts indicate this is perhaps the wrong approach. Rather, the audit should be focused on determining whether 1) you still have major financial commitments, 2) you still have loved ones dependent upon your income, and/or 3) you or your spouse will need help with long-term care costs.

If any of these can be answered in the affirmative, experts suggest it might be necessary to retain some level of life insurance or consider some sort of hybrid policy.

What are your thoughts on the idea of an insurance audit? Is it something you'd be willing to do?

Source: Forbes, "How to give yourself a midlife insurance audit," Jack Fehr, Feb. 1, 2017

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