Life insurance plays an important role in the completion of a financial plan. Whether life insurance is needed to protect your family, fund an estate tax bill, complete an employee benefit plan or more, it is often central to helping you meet your financial goals and objectives. Just as your financial goals and assets change over time, your life insurance needs also change over the years. When you purchased your current life insurance policies, your lifestyle was probably different than it is today. Since you purchased your policy or last looked at your life insurance needs, you may have married or had children or maybe retired. Your income sources may also have changed from what they were then. Because of these and other lifestyle changes, your current life insurance coverage may be insufficient to cover your needs. Your coverage may also be insufficient due to the performance of the life insurance policy itself. Your existing policies may have underperformed and now risk an unexpected increase in premiums or potentially taxable events. Just as you monitor your other assets, it’s important to diligently monitor and review your life insurance needs and existing coverage.
What is a Life Insurance Review?
A life insurance review is not a life insurance replacement program. Instead, it is part of an ongoing assessment of your ever-changing needs. The focus of a life insurance review consists of analyzing your existing life insurance to determine if it is appropriate for your needs and also to determine whether the type and performance of your existing life insurance will still protect and meet your financial goals and objectives. A life insurance review also includes a review of your beneficiary designations to determine if they are in line with your estate planning objectives. Life insurance polices have advanced in recent years. Today’s variable and universal life insurance policies may offer more opportunities, enhanced features, higher death benefits and more competitive premiums than ever before.
>How Much is Enough?
When determining how much insurance is needed to protect your family if something were to happen, many experts offer general rules on how much coverage would be needed. But remember, every family has its own special needs. So much depends on your age, whether you have children, what you earn, what your spouse earns and how much money you have saved. Also important are the amount, type and duration of your obligations—home mortgage, college tuition, as well as other loans and obligations. The key starting point is to estimate how much income your family will need on an annual basis for their living expenses and how long your family will be dependent on this income. When estimating the needed income stream, it is important to consider whether you want one parent to have the ability to stay home with the children instead of having to go back to work.
This will impact the income stream needed. Once the amount needed is determined, you can calculate the amount of insurance that will be needed to generate the required income for the desired period making sure to take inflation into consideration. After calculating the amount needed to provide for annual living expenses, you need to determine the amount of life insurance coverage you would need in order to cover both your short-term debts such as funeral expenses; estate administration expenses, including estate tax; credit card debt and auto loans; and long-term debts such as mortgages or college tuition.
