by John Bearss
The Bible says in I Timothy 5:8 “But if anyone does not provide for his own, and especially for those of his household, he has denied the faith and worse than an unbeliever. I believe the Bible is very clear that we should provide for our families, but what if you are not here to do that anymore?
Today, I would like to focus on one of the 5 building blocks to a good financial plan that Jerry has been teaching for sometime now and that is protection through life insurance.
When was the last time you looked at your life insurance coverage? How long has it been since you sat down with a calculator and considered your loved ones’ financial needs? If it’s been a while, you’re in good company. Most of us craft our life insurance programs with care when purchasing a policy, then forget to revisit the subject as times change. Of course it’s only natural to avoid thinking about the possibility of our death. Still, the payoff can be worth the extra effort it takes to perform a periodic review.
If it’s been more than five years since your last life insurance checkup, you may be missing opportunities to take advantage of newer life insurance policies that are more cost-effective and competitive. Policies purchased years ago may not be capable of fulfilling your current needs. Changes in the life insurance industry in recent years should inspire you to review your coverage. Interest rates that are being credited to your old whole and universal life policies may have decreased, making your current policy less cost-effective than newer policies that could possibly provide equal coverage with lower premiums. However, with a new policy you will face a new suicide clause and incontestability period.
You don’t want to leave your heirs legal and tax problems that could have been avoided. Beneficiary designations will override a will, so it is important to review your beneficiary designations on your life insurance policies.
Use the Rule of Two when naming your beneficiaries. Name two backup beneficiaries for every person named. If the primary beneficiary dies before the insured, failure to name a contingent beneficiary may cause the assets to go into Probate where there is a risk of higher costs and creditor access. I have seen many times where people have not named a contingent beneficiary or they have simply named their estate as the contingent beneficiary and this is a major mistake.
Another major planning error of a life insurance policy is naming an improper owner. This error can possibly result in higher estate taxes being levied and with the possibility of the Bush tax cuts expiring at year end, this error of having an improper owner on a life insurance policy could cost your beneficiaries thousands of dollars in estate taxes.
What kind of events should trigger a life insurance checkup?
1. If you are newly married.
2. If you have lost a spouse
3. If one of your heirs has been recently married or divorced
4. If a child or grandchild has recently been born or adopted
5. If you have had a major career change.
6. If you have recently retired – just to name a few
So please take some time to review your life insurance policies to make sure they are set up properly and that they will provide enough money to care for your family in case you are not here to take care of them yourself.
I trust this financial insight has been helpful and I look forward to the next time when I can help you provide the foundation for a lifetime of financial independence.