You bought life insurance to protect your family. Maybe you purchased the policy when your first child was born, chose an amount that seemed substantial, named your spouse as beneficiary and put the premiums on autopay.
Then life kept moving. Your income has changed. Your mortgage grew. You had another child. Perhaps you divorced, remarried, started a business, became responsible for an aging parent or created a trust. But when was the last time you reviewed your life insurance beneficiary designations?
Making it a good time to ask more than, “Do I have life insurance?” The better question is: Will the money reach the right people, at the right time and with the protection I intended? Does the amount still make sense?
A policy purchased 10 years ago was based on your life 10 years ago.
Suppose you have a $500,000 policy and your family would need to replace $100,000 of annual income. Five years of income replacement alone could consume the entire benefit. Add a $2,400 monthly mortgage, childcare, college expenses, final expenses and an emergency reserve, and $500,000 may not go nearly as far as you thought.
There is no single “right” amount of life insurance. The important thing is periodically comparing your coverage with the responsibilities your family carries today.
Parents sometimes name minor children as beneficiaries because the insurance is intended for them. The intention is understandable, but minors generally cannot simply receive and manage substantial insurance proceeds themselves.
Without proper planning, someone may need to manage those funds under a court supervised or other legal arrangement. Eventually, the child may receive control of a significant amount at an age you would not have chosen.
A properly designed trust can provide another option. You can select the trustee and establish guidelines allowing the money to be used for education, health, housing and other needs while providing protection and guidance as your child grows.
For families with minor children, the insurance plan should also coordinate with the guardians and other protections established in the estate plan. The people caring for your children and the people managing their inheritance should be deliberately chosen and not determined by circumstances after your death.
Life insurance generally passes according to the beneficiary designation on the policy, not according to your will. Creating or updating a trust does not automatically update your insurance beneficiary form.
That means an old designation could still name a former spouse, omit a later-born child, reference an outdated trust or have no contingent beneficiary at all.
Your life insurance, trust, will, guardianship provisions, retirement accounts and other beneficiary-designated assets should work together as one coordinated plan.
Life insurance is more than a death benefit. It may give your spouse time to grieve without immediately worrying about finances. It may allow your children to remain in their home and school, pay for college or prevent a family business from being sold under pressure.
You have already made the decision to protect the people you love. A periodic life insurance and beneficiary review makes sure that decision still works for the life and family you have today.
Send your questions to ccolan@colanlegal.com and use “Alpine Mountaineer estate planning question” as the subject. We’ll answer your questions in our upcoming issues.This article is provided by your local estate planning attorney, Corina Colan. The Law Office of Corina I. Colan / (909) 265-3315 / www.colanlegal.com
0 Comments