Tax and Business Alert
Abstract: At one time, life insurance played a
much bigger role in estate planning than it does now. That’s because life
insurance was needed to pay estate tax, which affected more people than it does
now. With the federal gift and estate tax exemption now at $13.61 million for
2024, far fewer families must pay estate tax. Here’s how to evaluate your life
insurance needs in light of circumstances today.
Have you recently reviewed your life insurance
needs?
At one time, life insurance played a much
larger part in an estate plan than it does now. Why? Families would often use
life insurance payouts to pay estate taxes. But with the federal gift and
estate tax exemption at $13.61 million for 2024, far fewer families currently
are affected by estate tax.
However, life
insurance remains a powerful tool to help provide for your loved ones in the
event of your death. The amount of life insurance that’s right for you depends
on your personal circumstances, so it’s critical to review your life insurance
needs regularly in light of changing circumstances.
Reasons to reevaluate
In addition
to the estate tax exemption amount, consider reevaluating your insurance
coverage if you’re:
· Getting married,
· Getting divorced,
· Having children,
· Approaching retirement, or
· Facing health issues.
The right
amount of insurance depends on your family’s current and expected future income
and expenses, as well as the amount of income your family would lose should you
pass away. The events listed above can change the equation, so it’s a good idea
to revisit your life insurance needs as you reach these milestones. For
example, if you get married and have kids, your current and future obligations
are likely to increase significantly for expenses related to childcare,
mortgage, car payments and college tuition.
As you get
older, your expenses may go up or down, depending on your circumstances. For
example, as your children become financially independent, they’ll no longer
rely on you for financial support.
On the other
hand, health care expenses for you and your spouse may increase. When you
retire, you’ll no longer have a salary, but you may have new sources of income from
retirement plans and Social Security. You may or may not have paid off your
mortgage, student loans or other debts. And you may or may not have accumulated
sufficient wealth to provide for your family.
Periodic reassessment a must
There are
many factors that affect your need for life insurance, and these factors change
over time. To make sure you’re not over- or underinsured, reassess your
insurance needs periodically — and especially when your life circumstances
change. We can help you assess whether you have an adequate amount of life
insurance coverage.
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