Reviewing Life Insurance Plan

Maintaining a life insurance policy that meets your needs is an ongoing process. Before you put that policy in a drawer to gather dust, remember that life insurance requires fine-tuning over time, especially as you reach life’s various milestones. To help ensure your coverage continues to meet your current needs, review your policy on a regular basis. 

The importance of life insurance and the role it may play in protecting the financial future of your loved ones is clear. Yet, are you reviewing your policy on an annual basis, particularly when you reach any of life’s milestones? Changes in your life, such as getting married, buying a home, or having a child, make reviewing your policy a necessary component of your financial planning. You may need to give your policy extra consideration in any of the following situations:

Marriage. In addition to determining whether or not your coverage amount is still appropriate, you may also consider insurance for your spouse. It is important to update your beneficiary list to include your new spouse and a name change, if applicable.

Birth or Adoption of a Child. With added responsibilities of a new child, more coverage may be needed. Keep in mind that the skills of a child’s primary caretaker are not easily replaced, and childcare can be expensive. As your family grows, be sure to also update your beneficiary list.

Purchasing a New Home or Refinancing of Your Mortgage. Owning your own home is exciting, but extra coverage may be necessary to help ensure mortgage requirements continue to be met in the event of your death.

Saving for College/Retirement. A family’s financial goals, such as funding a college education or saving for retirement, may be affected in the event of your death. Insurance proceeds may be used to help fund these goals. Also, if the policy allows withdrawals or loans, they may be used to help supplement retirement income or pay tuition expenses. However, loans and withdrawals can reduce the policy’s cash value and death benefit can increase the chance that the policy will lapse, and may result in a tax liability if the policy is terminated before the death of the insured.

Starting Your Own Business. If you leave your job to start your own business, be sure to address changes in coverage when you leave your employer’s benefit plan. Review your objectives, and consider the ways in which life insurance can be used as a business tool. For example, for business continuation purposes, you may be interested in obtaining coverage for financing a buy-sell agreement. In certain circumstances, you may consider naming business partners as beneficiaries.

New Job. If you change jobs, pay attention to the benefits offered by your new employer. The use of life insurance as an employee benefit may vary from one employer to another, and this must be factored into your personal policy.

Estate Planning. Life insurance is present in almost every estate plan and serves as a source of support, education-expense coverage, and liquidity to pay death taxes, pay expenses, fund business buy-sell agreements and sometimes to fund retirement plans. For small estates, the amount of applicable exclusion ($2 million per person per estate), death taxes are not a significant consideration. For this reason, insurance ownership as a tax-savings device is not critical. The main item that policy owners should be aware of is to ensure that the beneficiaries are well provided for by the chosen insurance policy. For larger estates with more assets than the amount of the applicable exclusion of $2 million, life insurance is an essential component of the estate plan. 

Through annual reviews, you can plan for the right amount of life insurance coverage to help provide for your loved ones, and meet your financial goals and obligations in the event of your death. In addition, as you approach each one of life’s many milestones, reviewing your life insurance policy with the guidance of an insurance as well as estate planning professional may help you be better prepared for whatever life brings your way.

► To learn more click here to download "A Consumer's Guide to Estate Planning in Ohio"

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