Why Life Insurance is Still Relevant in Estate Planning
In the past, life insurance was a cornerstone of estate planning, primarily used to pay estate taxes. However, with the federal gift and estate tax exemption set at $13.61 million for 2024, fewer families are impacted by estate taxes. Despite this, life insurance remains a crucial tool for providing financial security to your loved ones in the event of your death. Regularly reviewing your life insurance needs in light of changing circumstances is essential to ensure adequate coverage.
Reasons to Reevaluate Your Life Insurance
Life changes can significantly affect your life insurance needs. Consider reevaluating your coverage if you experience any of the following:
Buying a Home or Paying Off a Mortgage: Homeownership or mortgage repayment can alter your financial responsibilities, making it necessary to adjust your coverage to protect your investment.
Getting Married or Divorced: Marriage or divorce changes your financial obligations and dependents, necessitating a review of your insurance policy.
Having Children: The birth of a child increases your financial responsibilities, including day-to-day expenses, childcare, and future educational costs.
Approaching Retirement: As you near retirement, your income sources and financial needs shift, affecting how much life insurance you need.
Facing Health Issues: Health changes can increase your medical expenses and affect your financial planning, requiring adjustments to your life insurance.
Assessing Your Life Insurance Needs
The right amount of life insurance depends on your family's current and future income and expenses, as well as the income your family would lose if you passed away. Milestones like having children, approaching retirement, and changes in health can all impact your life insurance needs. For instance, as your children become financially independent, your need for coverage might decrease. Conversely, healthcare expenses may rise as you age, and your income sources will shift after retirement.
Periodic Reassessment is Crucial
To avoid being over- or underinsured, it’s important to reassess your insurance needs periodically, especially when life circumstances change. Remember that without Congressional action, the gift and estate tax exemption will drop to an inflation-adjusted $5 million in 2026.
Contact Us
Ensure you have adequate life insurance coverage to protect your loved ones. Contact our office to assess your current insurance needs and adjust your coverage accordingly.
