I believe that one of the least understood (and perhaps one of the most important) of any financial-related products is life insurance.
Most folks know the basic premise of life insurance:
When you pass away, you can leave something behind for your beneficiaries.
Yet the truth is that life insurance, depending upon the type you select, can help you in a variety of ways. For example, some life insurance can not only provide a death benefit, but can also provide a way for you to pay for long-term care (like a nursing home), or even provide income to you in your retirement.
DO: Understand What Your Life Insurance Policy REALLY Is
Often times when I meet with new clients to review their overall financial situation, their biggest “shock” comes when I talk about their life insurance. For some folks, their life insurance doesn’t actually do what they thought it did, or it isn’t worth what they thought the policy was worth. Even worse, sometimes we review a life insurance policy to discover that the policy actually has no value or even that it could expire before the person passes away. Be sure to meet with someone who can walk you through all the aspects of your policy. Take the time to understand exactly what it is, what it does, what it can do, and what it will never do.
DON’T: “Set It And Forget It”
Just like lots of other financial products and services, the life insurance industry offers new products from time to time. New ways of calculating your benefits, new ways you can use the life insurance money, or new options within your policy can all change over time. In addition, the value of your policy can change. For some people, this means they could have addition monies available to them during their life. For others, it could mean you need to add coverage, or change the way you’re using your current policy.
DO: Check Your Guarantees
Some life insurance policies are only guaranteed for a period of time (10 years, 15 years, etc.) while others are designed to provide coverage for your whole life. Also, some policies guarantee a certain death benefit and value while others have a minimal guaranteed value.
Its important to have an advisor help you check the fine print. Some policies that claim to be “whole life” actually have no value after age 95, for example. These policies are not necessarily bad, you just need to know what your guarantees are so you can plan accordingly. We feel life insurance policies should be guaranteed for a period of time.
DON’T: Assume Your Work Life Insurance Has Got You Covered
Some people who work for the government or certain companies have a life insurance that is worth less once they leave the company. Even if you’re still working, your life insurance coverage may change due to the company’s policies. Its important to have a qualified advisor double check this for you.