When Judy1 purchased
her life insurance policy 10 years ago, she thought her insurance planning was
complete. She assumed that if she paid her premiums on time, she could sit back
and not think about life insurance anymore.
Judy’s life
insurance may help to protect her loved ones from future uncertainties, but her
policy should not be left to run on autopilot. Life insurance is just like any
other piece of your financial puzzle. As your circumstances and needs change,
periodic monitoring is needed to help ensure that your life insurance will
achieve your desired objectives.
Here are some
questions that Judy, like all policyholders, can ask as part of an annual
review.
Is My Coverage
Up-to-Date?
To start, Judy may
want to consider whether her original reasons for purchasing her policy are
still applicable. She may also evaluate any additional needs.
For instance, when
Judy initially purchased her policy, she was newly married and owned a modest
home. Now Judy and her husband, Jim, have four children and a much larger home.
Is Judy’s existing policy appropriate for her new circumstances? She may need
additional life insurance to help cover a larger mortgage, pay college expenses
for four children, or contribute to her family’s financial future in the event
of her death.
If Judy’s existing
policy is term insurance, she may want to consider converting it to a permanent
contract. Permanent insurance contains a cash value component that offers the
potential for tax-deferred accumulation, as well as the same death
benefit features of term insurance.
In the future, the
cash value could be accessed to help supplement retirement income needs. Keep
in mind that withdrawals and loans taken against a policy’s cash value could
reduce the death benefit, increase the chance that the policy will lapse, and
may have tax consequences.
Have My Beneficiaries
Changed?
Currently, the
primary beneficiary of Judy’s life insurance policy is her husband, Jim. If Jim
were to predecease Judy, the policy currently names Judy’s nephew as a
contingent beneficiary. However, now that Judy has her own family, she may
choose to update her policy’s beneficiary arrangement to name her children as
contingent beneficiaries instead of her nephew.
In addition, if
Judy and Jim eventually set up a living trust, a legal professional may suggest
naming their trust as the policy’s beneficiary.
Has My Estate Grown?
Regardless of the
type of life insurance Judy owns and the beneficiary she chooses, the death
benefit proceeds from the policy will be included in Judy’s estate.
As their asset base
increases, the family may want to periodically monitor and update their estate
planning strategies to help minimize the effects of estate taxation.
Life insurance may
play a significant role in solidifying the family finances of couples like Judy
and Jim. But as with all financial matters, life insurance policies need to be
reviewed on a regular basis.
Be sure to consult
a qualified insurance professional to help you evaluate your present situation and
determine an appropriate course of action.
1 Hypothetical example shown for illustrative purposes only and does not represent a real client.
Most life insurance policies are subject to medical underwriting, and in some cases, financial underwriting. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender charges. If properly structured, proceeds from life insurance are generally income tax-free. Life insurance agents do not give tax or legal advice. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Product and feature availability may vary by state.
