Selecting The Right Life Plan

As we travel through the many stages of our financial life, our needs tend to change.

As young adults, those needs may be pretty straightforward, but important milestones to us at the time. We save for that first car, a ring for that special someone, maybe that first apartment.

As we move through future stages, that picture becomes more focused. Now, we are saving for a down payment on that first house, then comes college tuition for the kids and, eventually, retirement.
Besides those typical phases of life come the unexpected financial events that we may or may not have planned for. Things like the illness or death of a loved one, divorce, or a spouse that retires.

One thing is sure, if our lives change because of unexpected life events, our insurance needs should also change.

Make adjustments that work for you
While life insurance is an important financial tool for many families, in many cases it shouldn't be a "set it and forget it" plan. For example, let's say a husband and wife have life insurance policies that they are still paying premium payments on and the husband passes away. Depending on the size of the death benefit to the wife, and the level of concern for whether the children will need additional inheritance dollars from mom's life insurance policy, there may no longer be a need to keep that second policy.

This would allow the wife to put the dollars she was paying for insurance premiums in her pocket for her desired benefit.

Many companies have employer-sponsored life insurance plans for their employees. These plans vary from employer to employer but generally cover about three years of salary. Depending on the level of coverage needed in the event of an untimely demise, you may want to think about purchasing additional insurance outside of your employer.

We typically see this when an individual or couple has a large mortgage, college-bound children, and other future expenses that the employer-provided insurance policy isn't large enough to cover.
A proper plan will help determine if additional coverage is a financially sound idea.


Know when to cancel
Don't be afraid to cancel your policy if it makes sense for your financial picture. By the time many people retire, their mortgage is paid off, the kids are out of college, they have no significant outstanding debt and a nice retirement income.

Hanging on to those insurance policies and continuing to make those premium payments may not make sense.

Where it may make sense is if you have a total estate value that may exceed the federal estate tax exemption amount at your death, currently sitting at $5.45 million.

In this case, many high net worth individuals will purchase life insurance to help offset estate taxes more than the exemption amount, but we'll save that for another article!

Choosing the right plan for you
When looking at life insurance plans, you will want to be realistic about the amount of coverage you'll need, especially when it comes to the amount you will pay in premiums year after year.

Not only will a multi-million dollar policy cost you a substantial sum of money, but most insurance carriers will not qualify you for a policy that they determine you are unable to afford. The amount of insurance coverage is typically capped at ten times your annual salary.

When shopping for insurance, understand that the cost and coverage amount quoted in an illustration by the insurance provider may not be the actual cost and coverage that you qualify for.

Insurance providers have strict health and financial guidelines that they use in determining coverage. These may include a health exam, reviewing your MIB or medical information bureau report (if you have one), which is similar to a credit report for your insurance and health history, and ordering copies of your medical records from your doctor.

These reports will help the insurance provider decide on what insurable level you are rated at. That rating will be either Preferred, which means you will pay the lowest rates, Standard or Substandard, in which applicants will pay the highest rates.

The process of purchasing life insurance can be confusing. There are many different types of life insurance policies offered and many factors to consider when deciding what plan is right for you and your situation.

It may be a good idea to sit down with a qualified independent insurance professional who will look at your total picture to determine what insurance plan is best for you.