When Judy 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, and 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 should 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.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
This article was prepared by Liberty Publishing, Inc.
LPL Tracking #1-05166341