As time passes, your life circumstances change, often in ways that can significantly affect your financial planning and security. This is especially true for life insurance, a critical component of many financial strategies. Whether you purchased your policy years ago or are just considering life insurance, periodic reviews are essential to ensure that your coverage still aligns with your current needs. Here’s why and how to re-evaluate your life insurance effectively.
Start with a Life Insurance Needs Analysis
Many people haven’t revisited their life insurance coverage since initially setting up their plan, which might be outdated given changes in their life circumstances. An insurance needs analysis, a comprehensive review of your life insurance coverage in the context of your current financial situation and future goals, can help you determine whether your existing life insurance is sufficient or excessive or if there are gaps that need filling.
Assess Changes in Personal Circumstances
Life changes—such as marriage, divorce, the birth of a child, a new mortgage, or a significant shift in health—can all impact your life insurance needs. For instance, if you’ve recently gotten married, you might want to consider increasing your coverage to protect your spouse financially. Similarly, the addition of children increases your financial responsibility and typically means you need more coverage to secure their future should something happen to you.
Consider the Terms of Existing Policies
Not just personal changes should trigger a review. The life insurance landscape itself evolves. New products come to market, and existing policies may no longer be as competitive or suitable as newer options. Reassessing your current policy’s terms, premiums, and benefits can reveal whether it’s worth keeping, adjusting, or replacing.
Revisit Trusts and Beneficiaries
Regular reviews are critical if your life insurance is tied into more complex estate planning, such as through an irrevocable life insurance trust (ILIT), a trust that cannot be modified or terminated without the beneficiary’s permission. Ensure that the designated beneficiaries are still appropriate and that the trust’s terms still align with your estate planning goals. Changes in tax laws and estate tax exemptions could significantly influence the relevance and effectiveness of these trusts.
Adjustments May Be Necessary
You have the power to modify your coverage depending on what your review uncovers. If your financial obligations have increased, boosting your coverage might be necessary. Conversely, if certain obligations no longer exist—like a paid-off mortgage—you might be able to reduce your coverage and, thus, your premiums. This ability to adjust your coverage puts you in control of your financial planning.
Consult with Professionals
Given the complexity and importance of life insurance, it’s reassuring to know that consulting with a financial advisor or an insurance professional is advisable. They can provide a detailed, personalized analysis and guide you through any necessary changes, giving you the confidence that your financial future is in good hands.
Why Regular Insurance Reviews Matter
Regularly re-evaluating your life insurance is not just a task; it’s a responsibility. It ensures that your coverage meets your needs and remains cost-effective. This proactive approach secures your financial future and provides peace of mind, knowing that you are well-prepared for whatever life throws your way. Don’t overlook this critical aspect of your financial health—make life insurance review a regular part of your financial planning.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
