We all have life insurance - somewhere - right? Maybe it's filed away deep in the file cabinet, or in the portable fire box that you haven't opened in a long time. Let's face it - who likes to review their life insurance needs? Well, here are couple of reasons why you should, and a couple of do's and don'ts when doing it.
Reasons:
- Life Insurance is cheap. Like computers, life insurance costs have come down over the years - mainly because we are living longer. Thus, you may be able to buy more than previously affordable, or may be able to replace what you have and save money!
- If your income has changed (hopefully up) since you purchased you last policy, or your family has grown or you are closing in on retirement - stop, and review your life insurance. Each of these major life events warrants a review of needs.
- Beneficiaries: when is the last time you verified your beneficiaries are current, and up to date with your wishes. If you don't do it, no one will. If you do not list any beneficiaries then a state judge will decide for you, and Uncle Sam may benefit from your lack of choice.
Do's:
- A professional needs assessment. Don't just go with the slick salesman formula of 10x income. Your situation maybe different than that. Take into account your debts, your wishes for family; college, lifestyle, legacy, etc.
- Keep life insurance assets out of your estate - minimize taxes. While trusts accomplish this, and may be appropriate, a simple cost effective technique is to simply not own your own life insurance. Rather, have your beneficiary (spouse or kids, etc.) own the policy on you (the insured).
- Consider future possibilities: it's hard to imagine needing life insurance when we are young / single, but if we had bought it then, think of the lower premium. The same may be true of future needs when kids are grown and gone.
Don'ts:
- When buying replacement coverage, never cancel an old policy until your replacement is effective.
- Don't rely solely on Group term insurance through your employer. Unless you have health issues, you may find buying your own private policy is cheaper. Also, group rates go up every year or 5 years - check it out with your HR dept. And, if you ever lose your job your group insurance either goes away, or gets really expensive.
- Don't buy permanent life insurance solely for an investment. While some policies have good investment features they are dragged down by the cost of the insurance and / or company. Unless you are maxing out your other tax deferred investments, permanent life insurance is not the place to invest first. Maybe last, but not first.
