Life Insurance Check-up (12/17/2018)

As is often said, life insurance is not for those who die, but is for those who live. If you die while you have life insurance in place, the people you have chosen as your beneficiaries will receive a sum of money (the death benefit) from your life insurance policy. The proceeds of life insurance are tax-free to the beneficiary and can be used for anything, but often the main purpose is to help make up for the loss of your income.

Some considerations in determining your needs for life insurance are: daily living expenses; your home; a child’s future education; final expenses; and retirement for your partner. While it may seem obvious to carry life insurance to cover the amount of your mortgage or outstanding loans, the daily living expenses or future expenses may not seem as clear.

There is no single right amount of life insurance a person should own. Some people select a coverage amount that is equal to 6 to 10 times their annual gross salary; others opt for twice their annual gross salary. Coverage amounts are individual and certainly not “one size fits all”. Additionally, the amounts needed will change throughout your life, so it is important to revisit your purchased life insurance policies periodically.

Many who have purchased coverage at a younger, healthier age often think that the amount will be sufficient until they actually die. While this may be the case for some, it is often not true. If you have purchased a term policy, the cost of the policy is fixed for the term you have purchased. For example, a 20-year $250,000 term life insurance policy premium will be fixed for 20 years. On year 21, the price could go up substantially. You may have thought that you would only need the coverage for the 20 years, but as the term limit approaches, you may still have outstanding debts or, conversely, may be in great health with the chance for many more years of living. Cash value policies purchased with a lump sum in your earlier years could run out of cash due to market performance or increased insurance costs and need replenishing.

The point is that you need to review your coverage every few years to see if you still need it, and if the amount you purchased is still on point. The cost of waiting to purchase more could be substantial with your increase in age and possible health issues. You may find that you have accumulated enough savings in your retirement and personal accounts, and have paid off your mortgage, so you may not need the benefit, or you need a lesser amount. You may not need to make any changes, but checking in periodically is worth your time to maintain your peace of mind.

Lisa Dugan

December 17, 2018