Life insurance helps family’s secure their financial future after the death of a loved one. The right policy will also help ensure that the estate that you have worked hard to build will be allocated to the beneficiaries you have chosen.
When purchasing life insurance, consider the financial responsibilities that your family will shoulder, such as a mortgage or car loan, to determine which type of policy to buy and how much coverage you need. Don’t forget to factor in long-term goals such as mortgage payments, your spouse’s retirement or your children’s education. In addition, it is important to know which type of policy you own, and how the benefits are paid if something happens to you and/or your spouse.
Most people passively manage their life insurance in a “set it and forget it” fashion, however, as your life situation changes through the years, so do your insurance needs. So it is important to conduct a regular review of your life insurance coverage to ensure you have the right protections and are not paying for unnecessary extras.
To review your life insurance, read your policy carefully and consider the following questions:
- Do your premiums or benefits vary from year to year?
- How much do the benefits build up in the policy?
- Which benefits are or are not guaranteed?
- What effect does interest on money paid and received have on the policy?
- Does your policy have cash-value and in what situations or procedures can it be accessed?
- Can the policy be converted into another form of insurance or annuity?
When reviewing your policy, make sure the benefits you receive cover your current needs. If you experience any life changes — such as a birth, death, marriage, divorce, job loss or even a new mortgage — then you might need to make changes to your life insurance policy for increased death benefits or a cut premium costs.
4 Common Life Events Requiring a Review of Life Insurance Coverage
1. Births, Deaths, Marriages or Divorces
Whenever there is a significant life event in your family it makes sense to review your life insurance coverage, because these changes usually shift the reality of your finances in a significant way. For example, if you suddenly find yourself responsible for an entire family you absolutely needed more life insurance. And if you get divorced once the children are grown-up, then you may not need as large a death benefit to provide for a spouse.
2. A Change in Your Financial Situation
A change in employment may cost you income and benefits such as life insurance coverage. In this case you may need a new policy altogether, but also a cut in premiums. Oftentimes couples may opt to switch from expensive whole life insurance to term in order to achieve savings.
Other changes in your financial situation might mean you need less life insurance. If you sell a property or business for example, you might suddenly have so much liquid cash that you really don’t need life insurance. Likewise, if your spouse lands a great job, that might reduce your need for a high death benefit.
If your retirement plans are strong enough to provide your spouse with income if you were to pass away after you retire, then you may not need life insurance anymore. However, if you’re investments aren’t keeping up with inflation you might actually need more life insurance to cover expenses late in life.
4. Having a Taxable Estate
If you end up having a taxable estate, life insurance is a wonderful way to lower your tax burden and still get access to funds. Permanent cash-value life insurance may come at a cost (for fees and start up) but is worth the tax savings down the road.
Review Your Life Insurance Coverage Every 2-3 Years
Life insurance is meant to protect your family against possible future risks. You can’t predict when these life events are going to trigger a change in finances, but you should be prepared. Reviewing your policy every other year will ensure you have the right amount of protection at an affordable price.
Check with your trusted Atlas Plus Insurance agent to review your life insurance policy and determine if you are in need of an update.