Life insurance is part of a responsible financial plan. And while you should feel secure knowing it will be there to meet your financial responsibilities and protect your family, you should consider periodically re-examining your insurance needs - especially at certain life stages. Below we've highlighted seven examples of how these needs can change throughout your lifetime.
When you get married, financial obligations become a joint effort. If one of you dies, a life insurance policy can help ensure the surviving spouse has the financial stability to maintain his/her current standard of living. Additionally, as the cash value in a permanent* policy grows, more assets become available to pay down a mortgage, eliminate business debt or settle outstanding tax obligations. Death benefits paid to the surviving spouse can also help fund a child's education or supplement retirement.
When your children are young, having sufficient life insurance for each parent is critical. If you or your spouse were to suddenly die, life insurance limits need to be able to pay for daycare, help fund a college education and cover everyday living expenses.
Life insurance is often purchased in amounts sufficient to cover the loan amount of a mortgage so that if you die, your beneficiaries will have enough money to pay off the balance. However, if you've moved into a more expensive home or have remortgaged, the amount you owe the bank may actually increase. Additionally, you may have selected to extend your mortgage term at some point to reduce your monthly payments. So if you have a term life insurance policy with a 20-year limit (as opposed to a permanent policy), and you've now extended your mortgage another 10 years, your life policy could end before your home is paid off.
If you're self-employed, chances are the investments you've made in your business have been substantial. If the value of your business has recently changed (the purchase of a new building, inventory or equipment), be sure your life insurance limits are set high enough to cover business debts that your family could be held responsible for when you die. Don't risk them having to liquidate assets to cover outstanding debt.
In the event of divorce, timely decisions should be made regarding the beneficiaries on your life policy. If you and your spouse don't have children, then it could be as simple as having the beneficiary on your policy changed. However, if you do have children, you'll want to consider steps that ensure the children are provided for when you die and this may not be through your former spouse. If you own the policy, then you may only need to request to have the beneficiary changed. If your former spouse owns the policy, then you may need to purchase a new policy naming your child or children as beneficiaries.
Most people know that having a will or trust is essential in estate planning. But if you have enough wealth for your estate to be taxed - at either the state or federal level - you should consider the tax benefits of a life insurance policy to help provide funding to pay estate taxes by reducing or even eliminating them. This could remove the possibility of a forced sale of assets to generate cash. In addition, life insurance can provide immediate cash for outstanding medical payments from the last illness, burial expenses, administration and other settlement costs.
The cash accumulation benefits of a permanent life insurance policy can complement a secure retirement. When making a withdrawal, you don't have to sell the asset as with stocks, and if you borrow against the cash value, there are typically no capital gains or ordinary income taxes involved. Unlike most investments and financial products, life proceeds are passed on to your beneficiaries tax-free. Remember, loans against the policy accrue interest and decrease both the death benefit and cash value by the amount of the outstanding loan and interest.
Always consult with an insurance professional who can provide you with a personalized assessment based on your unique life stage and who considers your current and long-term objectives, potential for risk, and financial goals.
As you age, it gets more expensive to buy life insurance. Moreover, certain health conditions can make premiums increase - or worse, make it difficult to qualify for life insurance coverage at all. For the same price of a weekly specialty coffee drink, you'd be surprised at how much term coverage you can easily afford.
*Provided required premium payments are timely made.
Protective refers to Protective Life Insurance Company, founded in 1907, and its affiliated companies, including Protective Life and Annuity Insurance Company.
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