Financial IQ Test: How Healthy is Your Life Insurance Plan?

What kind of life insurance policy do you have (if you have one at all)? Do you understand the terms? Are you getting the most bang for your insurance buck? How did you select the amount of insurance you have? How did you choose your insurance company and structure the policy? And how often do you review your life insurance needs?

Following is a Financial IQ Test to help you determine how healthy your life insurance plan is. Simply look at each statement, and answer it with a YES, NO, or NOT SURE. Keep track of your answers, and we'll see how you score at the end. Then, check out the resource articles below to increase your knowledge base.

Financial IQ Test: How Healthy is Your Life Insurance Plan?

Policy and insurance company selection

I check on the financial stability and overall reputation of the insurance company.

I buy only from companies with an "A" rating or higher.

I look at the monthly, quarterly, and annual premiums and select the least expensive option.

I shop across a few different insurance companies, or use a broker to help me.

I have asked about discounts for my spouse and I both having policies with the same insurer.

I decline coverage offered by telemarketers from my credit card company.

Policy Structure

I have enough life insurance to cover lost income, funeral expenses, pay off debts, and address any future needs (like a child's education).

I've selected both a beneficiary as well as a contingent beneficiary on the policy application.

I've indexed future needs (like a child's education or retirement savings for my non-working spouse) to inflation.

I've reviewed all the riders on the policy and only have the ones that I need.

I have reduced my insurance analysis needs by existing coverage provided through my employer or association membership.

Policy Maintenance

When I review my life insurance plan, I also review my premiums and compare them to current market rates.

When something major happens in my life, I reevaluate my life insurance needs right away.

I review my life insurance needs (if nothing has changed) every three years.

I discuss my insurance needs and options with my financial planner.

The insurance company always has my most current address on file.

General Knowledge and Maximizing Value

Smoking almost doubles my life insurance rates, but if I quit for a year and submit a form, my rates will drop.

I know the difference between temporary (Term) and permanent insurance, and have selected the most appropriate kind for my needs.

I know I'll have insurance needs in the future, so I got life insurance at a young age to guarantee my insurability.

I understand the benefits of a convertible (Term) policy.

I know what a cash value is on a permanent insurance policy, and what I can do with it.

I know how to access the cash value of my permanent policy tax-free.


Did you keep track of how many times you answered YES, NO, and NOT SURE? Great! Give yourself the following points for each answer:

YES = 4 points

NO = 0 points

NOT SURE = 2 points


Score 0-30: Do you have life insurance at all?

This is not a criticism; some people don't need life insurance at certain points in their lives. But have you taken the time to do an analysis and educate yourself as to your options? Do you know if your employer has provided life insurance and do you know what to do with it or if it's enough? Best not to bury your head in the sand with the excuse that you'll be dead and don't care about your estate plan. Check out some of the resources below, and talk to your financial planner about your needs.

Score 31-60: Not maximizing value

A little bit of knowledge is a dangerous thing. Although you have probably taken some time to educate yourself about life insurance, I would argue that you don't know what you don't know. You might be over-paying for your insurance, are insured for the wrong amount, or have an inappropriate type of policy for your needs. Make sure you review your needs regularly and are maximizing value wherever you can.

Score 61-88: You have a plan

If you scored in this range, then congratulations — you most likely have a life insurance plan of sorts in place. The industry is constantly changing, so make sure you reevaluate your needs, what you're paying, and the policies you have. Make sure your financial planner is on board with the plan, and check out the Wise Bread resources below to get some fodder for your next conversation with them.

Life Insurance Resources on Wise Bread

Credit Card Insurance? No Thanks

Choosing Life Insurance: Term or Permanent

Universal Life Insurance and Whole Life Insurance: A Comparison

How and Why to Buy Life Insurance

Is Getting Life Insurance for Your Children Prudent or Prudish?

Do I Need Life Insurance for the Little Ones?

Insured Annuities for Wise Bloggers

Why You Don't Need Mortgage Life Insurance

AD&D Insurance: No Good, No Bad, Just Ugly

Did Your Parents Give you a Whole Life Insurance Policy? Here's What to Do With It

Other FINANCIAL IQ Tests on Wise Bread

How Healthy is your Debt Management?

How Healthy are your Bank Accounts?

How Healthy is your Budget?

How Healthy is your Health Care Plan?

How Healthy is your Disability Insurance?

Do you Have the Best Auto Insurance Coverage for Your Needs?

How Healthy is Your Financial Plan?

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Guest's picture

Good post. I had a conversation today with a prospective client who seems pretty savvy but is being pressured by his insurance agent to convert all or at least some of his term to whole life. Nothing wrong with whole life, but it is not appropriate for everyone. Even for those for whom it makes sense, it is important to look at their stage of life, cash flow, etc. before making the decision to purchase or convert.

The ability to access the cash value can be an excellent benefit of a policy, but this also needs to be managed. If too much is borrowed and the policy lapses the owner could face a large unexpected tax bill. Also the need for the full death benefit should be factored in as well.

Even as a financial planner i consider life insurance to be much more complicated than it needs to be.