Life Insurance Review - See if Your Coverage Still Meets Your Needs

Five Questions To Ask About Your Life Insurance

Once life insurance is purchased, people tend to tuck their policies in a file folder and forget about them. But, like all aspects of your financial plan, your life insurance should be reviewed from time to time. Here are five key questions that can help you focus on your life insurance and whether it still meets your needs.

What are your goals? You probably bought your life insurance for a specific purpose. Maybe you wanted the insurance so your family would have a financial cushion if they had to live without your earnings. Or you might have wanted insurance to pay final medical and funeral expenses, pay off a mortgage, or cover estate taxes. Evaluate whether your original reasons for buying insurance are valid now and whether your existing coverage is sufficient to accomplish the objectives you currently have for your insurance.

Are your beneficiary designations up to date? Over the years, family changes such as births, deaths, marriages, and divorces can cause beneficiary designations to become outdated. Contact your insurance company if you need to change a beneficiary designation.

Is the insurer financially sound? You can find out by checking the company's financial reports and its credit ratings from the major rating agencies, such as A.M. Best and Fitch. If the company that issued your policy appears to be experiencing financial difficulties, you'll want to consider switching insurers.

Might you qualify for lower premiums? If your health has improved or you've quit smoking since your policy was issued, you may qualify for an upgraded health rating and lower premiums.

Would a trust be helpful? The proceeds of your life insurance policies will be included in your gross estate for federal estate-tax purposes. If your estate would be subject to estate tax, establishing an irrevocable life insurance trust to hold your policies might be an option worth considering. When tax law requirements are met, the proceeds of trust-owned life insurance are not included in the insured's estate for estate-tax purposes. Policy proceeds are paid to the trust and managed and distributed by the trustee according to the terms of the trust agreement.