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Life Insurance: Adapting to Changing Needs

When Jennifer purchased her life insurance policy 10 years ago, she assumed that her life insurance planning was complete. She thought that if she just paid her premiums on time, she could sit back and not worry about life insurance any more. Jennifer’s policy has provided protection for herself and her family over the years. But letting her insurance program run on autopilot may not be the best route to take in the long run.

Life insurance is just like any other piece of your financial puzzle. Periodic monitoring as your circumstances and needs change can help ensure your life insurance coverage meets with your desired objectives. Let’s take a closer look at some of the details that policyholders like Jennifer need to review, at least annually.

Is Coverage Current?

Jennifer must first determine whether her original reasons for purchasing her policy are still current and whether her personal circumstances or needs have changed. For instance, when Jennifer initially purchased her policy, she was newly married and owned a small, modest home. Now, Jennifer and her husband, Ron, have three children and a much larger home. Is Jennifer’s existing policy adequate considering these additional financial responsibilities: covering a substantial mortgage, funding a college education for three, and otherwise contributing to her family’s financial well-being? More than likely, Jennifer may require additional life insurance. And she may also want to make sure she has adequate coverage for Ron.

If Jennifer’s existing policy is term insurance, she may consider converting it to a permanent contract. Permanent insurance is unique in that it contains a cash value component that offers the potential for tax-deferred accumulation of funds; it has the same death benefit features of term insurance, however. In the future, the cash value could come in handy to help pay for college or provide retirement income. It is important to note that access to the cash value through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, can increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.

Updating Beneficiaries

Currently, the primary beneficiary of Jennifer’s life insurance policy is her husband. If Ron were to predecease her, the policy currently names Jennifer’s nephew as a contingent beneficiary. Now that Jennifer has her own family, she may want to update her policy’s beneficiary arrangement to name her children as contingent beneficiaries instead of her nephew. In addition, if Jennifer and Ron eventually set up a living trust, their legal professional may suggest naming their trust as the policy’s beneficiary.

Planning for a Growing Estate

Regardless of the type of life insurance Jennifer owns and who is named as the beneficiary, the death benefit proceeds from the policy may be included in Jennifer’s estate. As their asset base increases over the years, Jennifer and Ron should periodically monitor and update their estate-conservation strategies, to help minimize the effects of estate taxation.

Life insurance can play a significant role in solidifying the family finances of couples like Jennifer and Ron. However, it is also important to recognize that life insurance policies, like all financial matters, need to be reviewed on a regular basis with a qualified insurance professional to help determine an appropriate course of action.

Copyright © 2013 Liberty Publishing, Inc. All Rights Reserved. - 201303-0263

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