policy review

Make Financial Resolutions The One You Keep This Year

Before we’re able to plan ahead for how 2016 will be different, let’s first evaluate what took place in 2015.  What changed? Did your family welcome a new child? Did you experience the joy of marriage? New job? New home? Retirement? Divorce? Taking inventory of the previous year and understanding how those changes impact you, your business and your loved ones, are the guiding force behind properly planning for the year ahead. New year’s resolutions come and go too easily. The new faces you’re seeing at the gym in January will probably be gone by Valentine’s Day. While many resolutions are terminated entirely too early, if nothing else, let this be the year you get your financial home in good order.

 

Savings: What happens if you or spouse looses their job tomorrow? Do you currently have immediate access to the cash necessary to get your family through the next 6 months with no new income coming in?

 

Life Insurance: When was the last time you reviewed your existing life insurance coverage? Any time needs and goals change, it is important that your life insurance mirror that change. A new child, spouse, home, or significant change in income are all factors that should spark a review to ensure your loved one’s financial future is properly protected.  

 

Retirement Savings: A 401k & IRA are great tools, but not without limitations. If your current level of income precludes your participation in a Roth IRA, life insurance can help you create tax-free retirement income without the restrictions of traditional retirement planning vehicles. 

Is My Employer-Sponsored Life Insurance Enough?

Life insurance is far from a one-size fit all solution, yet many individuals view it as they do the purchase of a new pair of gym socks. A recent conversation with a close friend left me with an uneasy feeling in regards to a belief held by many that their employer-sponsored life insurance is both enough protection, and the most appropriate solution to cover their family in the event of loss.  While a generous addition to an employee’s compensation package, group life insurance policies have significant limitations which need to be better understood by the individual employee and their family to best determine whether or not they need to obtain additional coverage which more accurately reflects their unique goals.  Most group coverage is a temporary form of life insurance. Individuals risk loosing this life insurance and placing their loved ones in jeopardy, should they leave the firm, or have their employment terminated. It is often suggested by advisors, that individuals should obtain life insurance in multiples of their current salary to offset lost income for years to come. While many advisors advocate young families to hold a life insurance multiple of 10X - 20X their current salary in order to properly provide for dependents, the vast majority of employer-sponsored group life policies only cover 1X, 2X, or 3X current salary.  Not only does this represent a huge planning gap which could dramatically impact dependent’s quality of life; major sacrifices will need to be made assuming that lost income is not replaced. The key is to understand your coverage and how it directly impacts the lives of loved ones.

Time For A Policy Review

When was the last time you reviewed the balance and performance of your retirement savings or brokerage account? This is a question I have posed to prospective clients and peers over the past few months. Answers have been quite consistent; with most individuals having done so within the past month or two. As the market fluctuates and goals change over time, it is important to review and rebalance those account holdings to ensure you are planning properly. When I ask the same question to individuals about their life insurance, the result was dramatically different and quite startling. Less than 5% of those I inquired with put any ongoing thought into their life insurance outside of when they are making premium payments. Life insurance is a highly effective planning tool when implemented properly. It can provide protection for loved ones, tax fee liquidity and ensure businesses continue to flourish during transitional periods. With so much at stake, why have less than 5% of individuals reviewed their insurance needs since their current policy was originated? The most common response is that, “I did not know I should review it,” or “my agent never brought up the topic.” While agents should absolutely be proactive in the ongoing management of their client’s insurance policies, clients also need to recognize trigger events for when their current coverage may no longer be adequate in order ensure they have proper coverage when circumstances change.

Below are a few key examples of life events that should prompt a review of your current coverage:

·      Have you recently purchased a new house?

·      Have you welcomed a new child into your family?

·      Are you caring for an aging relative who relies on your financial support?

·      Have you recently gone through a divorce?

·      Have you recently started your own business?

·      Do you have a term life insurance policy approaching the end of its level premium period?

·      Have you recently retired? Do you plan to retire in the near future?

Everyday Risks

Whether it’s recognized at the time, or not, each day we take countless measures to reduce risk. From testing the temperature of the shower water prior to entering, to checking our rearview mirror before backing out of a parking space, to locking our front door, we do what we can to minimize the impact of potentially hazardous situations.  Yet, while we almost instinctively prevent plunging into a boiling hot shower and reversing into oncoming traffic before 9am, a significant number of American families remain uninsured, or under-insured. Life insurance is arguably the single most effective solution to ensure loved ones are provided for when we find ourselves on the wrong end of risk. Mortgages do not disappear, and the cost of raising a child does not decrease when one spouse passes. As the saying goes, the only guarantees in the world are taxes and death. The difference however, is that taxes are due on April 15th each year. Death on the other hand may come when it is least expected. In 2010, according to The Life Insurance and Market Research Association (LIMRA), 40% households with children under 18, say they would immediately have trouble meeting everyday living expenses if a primary wage-earner died today. Having the opportunity to strategically plan for life’s greatest guaranteed risk is an item that needs to be addressed sooner than later.