Yearly Life Insurance Coverage Check-In: 3 Questions to Ask

You have a great life insurance policy—but is it still up-to-date? To protect you from future uncertainties, your policy shouldn't run on autopilot. As circumstances and needs change, monitoring your policy will ensure you achieve your desired objectives. In this post, we’ll be covering key questions that every policyholder should ask themselves each year.

Take the example of Judy: when she purchased her life insurance policy 10 years ago, she thought her insurance planning was complete. She assumed that if she paid her premiums on time, she could sit back and not think about life insurance anymore. Judy’s life insurance may help to protect her loved ones from future uncertainties, but her policy should not be left to run on autopilot. Life insurance is just like any other piece of your financial puzzle. Like Judy, your circumstances and needs will change—so you’ll need periodic monitoring to help ensure that your life insurance will achieve your desired objectives.

The three questions outlined below should be addressed each year as part of your annual review.

Is My Coverage Up-to-Date?

First, you’ll want to consider whether or not your original reasons for choosing your policy are still applicable to your life and future. Are there any new developments in your life that represent an additional need?

For instance, when Judy initially purchased her policy, she was newly married and owned a modest home. Now Judy and her husband, Jim, have four children and a much larger home. Is Judy’s existing policy appropriate for her new circumstances? She may need additional life insurance to help cover a larger mortgage, pay college expenses for four children, and contribute to her family’s financial future in the event of her death. 

If Judy’s existing policy is term insurance, she may want to consider converting it to a permanent contract. Permanent insurance contains a cash value component that offers the potential for tax-deferred accumulation, as well as the same death benefit features of term insurance. In the future, the cash value could be accessed to help supplement retirement income needs. Keep in mind that withdrawals and loans taken against a policy’s cash value could reduce the death benefit, increase the chance that the policy will lapse, and may have tax consequences.

Have My Beneficiaries Changed?

Perhaps you’ve gotten married, your family has grown, or one of your beneficiaries has passed away themselves. The addition of a trust (such as a living trust) could affect the way your life insurance policy functions. 

Currently, the primary beneficiary of Judy’s life insurance policy is her husband, Jim. If Jim were to predecease Judy, the policy currently names Judy’s nephew as a contingent beneficiary. However, now that Judy has her own family, she may choose to update her policy’s beneficiary arrangement to name her children as contingent beneficiaries instead of her nephew. In addition, if Judy and Jim eventually set up a living trust, a legal professional may suggest naming their trust as the policy’s beneficiary.
 

Has My Estate Grown?

Over the course of your life, your estate will likely grow with your career, supplementary income, home equity, investments, and much more. Evaluating your policies periodically will make sure your life insurance coverage is the right fit for your growing estate.

Regardless of the type of life insurance Judy owns and the beneficiary she chooses, the death benefit proceeds from the policy will be included in Judy’s estate. As their asset base increases, the family may want to periodically monitor and update their estate planning strategies to help minimize the effects of estate taxation.
 

Life insurance may play a significant role in solidifying the family finances of couples like Judy and Jim. But as with all financial matters, life insurance policies need to be reviewed on a regular basis. Be sure to consult a qualified professional to help you evaluate your present situation and determine an appropriate course of action. Looking for an advisor to help you with decisions about your finances and policy coverages? Get in touch with Blueprint 360.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Charles Adi, and all rights are reserved. Read the full disclaimer here.