Life changes often, and it is easy to lose track of all that has happened when we are focused on managing day-to-day responsibilities. Insurance coverage needs to be reviewed periodically not only to make sure your family is protected financially against unplanned events but also to keep you on track with your retirement plan. We recommend reviewing your policies at least once a year, and any time a major life change occurs.
Major Life Changes That Affect Insurance Needs
Here are some examples of life changes that can necessitate a change in life insurance coverage:
- The birth of a child or grandchild (or an adoption)
- Marriage or divorce
- Changing jobs or starting a new business
- Moving and/or purchasing a home (or acquisitions of major assets)
- Taking on new debt
- Any changes to your health or the health of a dependent (positive or negative)
Even if no obvious life changes have occurred, it is still important to review your coverage when assessing your overall financial plan. Insurance coverage is a tool in your financial tool kit that will serve as a significant piece of your post-retirement income as well as your legacy plan.
It is important to keep track of all beneficiary designations, and not only on insurance policies. Retirement plans such as an SEP, IRA, or 401(k) allows a participant to designate a beneficiary. This underscores the need to periodically review your estate plan as well as your insurance policies, as each policy or instrument will contain separate beneficiary designations (and default provisions for distribution in the event of your death). In some cases, it can be beneficial to designate a trust as the beneficiary of a life insurance policy, which allows for greater control of how funds will be used.
Even if your will or other legal agreements stipulate distributions to specific beneficiaries, the beneficiary designations on your policy documents could take legal precedence. To name one example, in Herring v. Campbell (2012), the Fifth Circuit Court overturned a lower court’s decision and awarded a deceased plan participant’s benefits to his biological children rather than his stepsons, even though the deceased had listed his stepsons in his will and Texas probate law allowed for “equitable adoption.” (1)
Changes To The Structure Of Coverage Needs
One question to consider, in addition to coverage levels, is the type and structure. Typically, term life insurance makes more sense during the earlier years and when income is lower, as it provides an immediate safety net to protect against the financial impact of sudden death. Life insurance is only one part of the overall insurance picture. At some point, the need shifts.Different types of coverage, such as long-term care insurance, become more appropriate. Also, certain types of assets may need their own insurance policies, such as fine art, wine, or cigar collections that have substantial value.
Potential Tax Law Changes
Right now, much speculation abounds regarding the potential for tax law changes. The proposed tax plan outlined in 2020 would raise income and capital gains tax rates for high-earning individuals. (2) If you believe your income may reach high enough levels to be impacted by the new tax laws, should they go into effect, options and strategies may be available for sheltering some income and assets. Investing in life insurance policies can in some cases offer tax advantages over other vehicles.
If you would like to evaluate your current insurance coverage as it relates to your financial plan, please feel free to call us anytime at 818-841-1746 or email firstname.lastname@example.org to schedule a consultation.
Trevor Cole is a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional, licensed life and disability insurance agent, and the Director of Compliance at CTA Wealth Advisors, Inc. a fee-only Registered Investment Advisory firm in Burbank, California. Trevor has 24 years of experience in the financial services industry and is an integral part of the CTA Wealth Advisors, Inc. team. He is passionate about helping clients create a secure plan for their future and helping them find the freedom to spend their time on what’s most important to them. Trevor has a degree in finance from California State University, Northridge, and worked in the insurance industry at both State Farm and The Prudential before joining the CTA Wealth Advisors, Inc. team. Learn more about Trevor by connecting with him on LinkedIn.
- For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
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