From August 19, 2009
Life insurance can be used for a variety of personal and estate planning needs. To make sure that your insurance policy meets your needs, avoid these mistakes:
-
Relying on rules of thumb to
calculate your insurance
needs.
Since everyone's situation
is different, you should
prepare a detailed analysis.
-
Not
considering all types of
insurance policies.
You
should understand the basics
of each type before deciding
which is most appropriate
for you.
-
Not
selecting the appropriate
policy owner. If
the policy is properly
structured, the proceeds
will be paid to your
beneficiaries without paying
federal income or gift taxes
and the proceeds will not be
included in your taxable
estate.
-
Not
selecting appropriate
beneficiaries.
You need
to consider the tax
ramifications before
selecting beneficiaries. For
instance, naming your estate
as the beneficiary would
result in the proceeds being
included in your taxable
estate. Or, if your spouse
owns a policy on your life
and your children are listed
as beneficiaries, the policy
proceeds may be considered a
gift, subject to gift taxes.
-
Purchasing cash-value
insurance for short-term
needs.
Cash
values typically accumulate
at a faster rate after the
first few years. Thus, you
should not consider a
cash-value policy unless
you're willing to own the
policy for at least 10
years.
-
Not
reviewing the insurance
company's financial
situation.
Life
insurance proceeds typically
won't be paid for years or
even decades. Thus, you need
to evaluate the financial
soundness of the insurance
company.
-
Replacing an existing life
insurance policy without
first evaluating the policy.
Look
at an in-force ledger
statement to determine the
policy's current status and
growth projections. If you
need more insurance, you can
always apply for another
policy for the additional
amount needed. A policy
change may require a medical
examination and may incur
fees and costs.
- Not evaluating your situation periodically. Your life insurance needs are likely to change over time. Thus, you should periodically review your needs to see if changes are warranted.
