Deciding the Right Term Insurance for You

werYou’ve made the move mentally. You are ready to do something selfless and get some life insurance to provide security for your family in the event of your early exit. Congratulations, as you are one of too few that are addressing this critical need.

Since you are making this effort, why not do it right? As you go through the process of deciding what type of insurance and how to fill out the application, please keep these things in mind.

1) Make sure you pick the type of insurance that meets the need as you see it for the foreseeable future. For example, if you have a 2 year old that you want to make sure gets college educated, make sure you don’t buy 10 year term as it will expire or become expensive when your child is 12, well before college.

2) Make sure you have the correct amount. Kids cost a lot of money before they leave the house and come off your payroll. Inflation, despite how low it has been recently, happens. Make sure to factor that in. You also need to factor in your current needs and not buy more insurance than you can afford.

3) Make sure you do the proper beneficiary designations. If you have juvenile children, don’t make them the beneficiaries. If you name your spouse, make sure you have at least 2 contingent beneficiaries or a trust as the contingent beneficiary. Don’t name your estate as the beneficiary as you subject the death benefit to probate. (There are exceptions such as if you have a contingent trust specified in your will).

4) If you are really rich, you probably aren’t reading this as you have advisors to do that. In case you are really rich and reading this, make sure you consider estate taxes when deciding who owns the policy. Despite the high federal estate tax exemption ($5,450,000 in 2016), some states want to raise revenue by taxing the transfer of wealth to the next generations. (Connecticut starts taking taxes once you go past $2,000,000 as an example). The bottom line is rich people shouldn’t own their insurance contacts and should consider using an irrevocable trust.

5) Finally, make sure you review your insurance every 2 to 5 years to make sure the contracts are still meeting your needs. Children grow up and can become beneficiaries, spouses become ex-spouses and you might not want them to get the proceeds and many other changes occur during the passage of time.

While the above material is believed to be both correct and helpful, please contact your advisors prior to following any of these recommendations. I’m not an attorney and don’t even play one on T.V.