Once people buy life insurance, they tend to tuck their policies in a file folder and forget about them. But, like all aspects of your financial plan, you should review your life insurance from time to time. Here are five key questions that can help you evaluate your life insurance and determine whether it still meets your needs.
1. What Are Your Goals for Your Life Insurance Policy?
You probably bought your life insurance for a specific purpose. Maybe you wanted the insurance so your family would have a financial cushion if they had to live without your earnings. Or you might have wanted insurance to pay final medical and funeral expenses, pay off a mortgage or cover estate taxes. Consider whether your original reasons for buying insurance are still valid, and whether your existing coverage is enough to meet your goals.
2. Are Your Beneficiary Designations Up to Date?
Over the years, family changes such as births, deaths, marriages and divorces can make beneficiary designations outdated. Contact your insurance company if you need to change a beneficiary designation.
3. Is the Insurer Financially Sound?
You can find out by checking the company’s financial reports and its credit ratings from the major rating agencies, such as A.M. Best and Fitch. If the company that issued your policy appears to be experiencing financial difficulties, you’ll want to consider switching insurers.
4. Might You Qualify for Lower Premiums?
Insurers may charge up to 50% higher premiums to users of tobacco products. So, if your health has improved significantly or you’ve quit smoking since you opened your insurance policy, you may qualify for an upgraded health rating and lower premiums.
5. Would a Trust Be Helpful?
Ordinarily, the proceeds of your life insurance policies will be included in your gross estate for federal estate-tax purposes. If your estate would be subject to estate tax, establishing an irrevocable life insurance trust to hold your policies might be an option worth considering. When tax law requirements are met, the proceeds of trust-owned life insurance should not be included in the insured’s estate for estate-tax purposes. The trustee manages and distributes policy proceeds to the trust according to the terms of the trust agreement. Discuss this option with your attorney so they can advise you accordingly.
Fifth Third Bank does not provide tax or legal advice. Please consult your tax adviser or attorney before making any decisions or taking any action based on this information. This information is provided for educational purposes only and does not constitute the rendering of tax or legal advice.
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