No one likes to think about their own mortality, but financial experts agree that life insurance policies play a key role in wealth management and estate planning. Even if you think you’re adequately covered, it’s smart to reevaluate your policies from time to time. Here are three questions to consider when evaluating whether your policy matches your family’s needs:
1. Could you outlive your policy?
Newer policies may mature at age 120, but many older policies mature when the person insured reaches the tender age of 95 or 100. With longevity increasing, it’s now more likely that you (or your parents or grandparents) could live beyond the policy’s maturity date.
So what happens then? Some insurance companies simply continue the policy. Other companies, however, may write a check and pay off the policy. Payouts received before death will generally be subject to income taxes, which means there won’t be as much money available as you had planned. And it won’t be paid out at the time you had planned—upon the death of the insured. If the insurance was earmarked to pay estate taxes or meet specific financial objectives, the proceeds may be insufficient.
2. Is your policy underfunded?
Low interest rates have left some types of policies significantly underfunded. That means you will either need to increase the premiums you pay, possibly dramatically, or settle for reduced death benefits. Otherwise, your policy could eventually become worthless. If you have universal life insurance or a policy with flexible premiums, make sure it’s properly funded by speaking to your representative.
3. Has your net worth fallen?
With many investments and home values taking a hit, you may not have as much to pass on to your loved ones as you once had. If your net worth has fallen significantly, you may want to purchase additional life insurance to fill any funding gaps. After all, you still want your kids to go to college or your spouse to be able to pay off the mortgage.
While you’re thinking about life insurance, do a quick check to see who has your power of attorney. If it’s your ex-spouse or deceased father, you will want to change that. Ditto for the beneficiaries to your life insurance and retirement accounts. Also, check the beneficiaries named in your will and any trusts.