Making Sure Your Tools Still Make Your Plan Work
The Los Angeles Times reported about a man in his 70s whose insurance policy premiums would have to increase to $510/month after 20 years of paying $25/month to keep the policy in force. The article is pretty well written, and I’ll cut the newspaper a break for the shock-value lead to bring you into the story. The message is this: Make sure you understand what you’re buying, and you have to re-evaluate whether what you bought is still the right tool in your toolbox.
Plan first, tools second, revisit often.
This adage applies to life insurance probably more than any other tool in your financial planning toolbox. In most cases, you bought it with the intention of keeping it for 20 years or more. A lot of life happens in five to 10 years, let alone 20. One of the biggest changes during that time is your own maturity – your thoughts and values change, your needs change, and your desire for security changes. What made perfect sense and what got your attention 5, 10, or 20 years ago is probably quite different than what you would notice and pay attention to today. And while you’re going about your life, the insurance industry has probably introduced new products and stopped selling others.
Remember to go back to your plan and then look at the tools (products) you’re using to make those plans happen. Evaluate whether a particular financial tool is still a viable part of that plan or no longer serving you. A life insurance review would be valuable. Most life insurance agents will do these for “free” as a way to sell you something else. Find an ethical one who will give you an honest answer, even if it means losing a commission. For life insurance, consider these questions:
• What might I need life insurance for?
• Do I have people who are financial dependent on me? For how much longer?
• Does the policy I have any cash value?
• How is my health?
• How much do I need?
• How might I use life insurance to meet multiple financial planning needs? (long-term care, cash reserves, retirement income supplementation, college education funding, etc.)
• How might I use pre-tax dollars to meet those premiums?
• What is the value of my estate and how much might my heirs have to pay in estate taxes?
Once you’ve explored some of these questions in present time, your answers from years ago may have changed. If so, time to choose a new tool.