You can never leave too much…Or can you?
First, make sure what you’ll leave behind is enough. Review your insurance needs annually, or more often if necessary. After a major life event (e.g., birth, death, marriage, divorce, job loss), it is also a good idea to review your coverage. If you think that you may need more life insurance or that you have too much, talk to your insurance professional, who can advise you on the right amount of insurance for your situation--remember that you’re planning for your family’s future.
Also, if you’ve chosen a cash value life insurance policy that allows you to make investment decisions, you may want some advice from an accountant, an investment advisor, or a financial professional. These experts can show you how to allocate your cash value account so that it fits in with your overall financial plan.
Can we talk?
If you’ve bought life insurance to ensure a bright future for your children, sit them down and talk about it. It’s always a good idea to talk to your children about the value of money, but serious talks about life insurance proceeds and the family estate should wait until they’re older. Eighteen is probably a good age, or slightly younger if you think your youngsters are mature enough to handle it. Although you don’t want to dwell on the fact that Mom and Dad won’t always be around, you do want to make them understand:
- How much money they’ll receive at your death, or at least that there will be sufficient funds for them to carry on, go to college, and so on
- Who will be in charge of it
- When it will be accessible and for what purposes
- What restrictions will be set in place
- Why all this planning is necessary
Do you have specific desires as to how you want the money to be spent (e.g., college education)? Explain your reasons. You may find that your children want to respect your wishes instead of trying to find ways around them. If you have young children, you’ll need to appoint a guardian(s) in your will to care for them and manage their assets (including insurance proceeds), in case something should happen to you and/or your spouse. Small children won’t understand all of the financial lingo, and you don’t want to frighten them with talk of death. So, talk to the person(s) you have chosen as guardian(s) about your plans and wishes.
Did you name your spouse, a parent, or someone else as a beneficiary? Talk to them now--don’t wait until a crisis arises. Among other things, you’ll want to discuss how the insurance proceeds might be invested and what they should be used for (e.g., home mortgage, children’s education, your final expenses). You should also talk about any financial plans you’ve already made (or plan to make) and tell them what life insurance policies you have and where all the important paperwork is located. That way, your beneficiaries will be prepared when the time comes.
Revocable and irrevocable trusts
If you’re concerned about your beneficiaries’ spending habits, or that they might need help managing their inheritance, a trust may be the appropriate tool for you. A trust is a legal agreement in which you appoint a person or institution, called the trustee, to manage certain property (e.g., real estate, stock portfolios, life insurance proceeds) for the benefit of one or more beneficiaries. Your attorney can help you set one up. If the right type of trust is used, this can be an excellent way to plan for your beneficiary’s financial future.