Cypress Wealth Services
It’s no secret that life is changing constantly; last year alone taught us that. While we’re focused on tackling the day-to-day responsibilities, it’s easy to lose track of all the changes that have taken place. Insurance coverage must be reviewed periodically for two important reasons: to make sure your family is protected financially against unplanned events and also to keep you on course with your retirement plan. We recommend reviewing your policies at least once a year, and any time a major life change occurs.
Here are some examples of life changes that can necessitate a change in life insurance coverage:
Even if no obvious life changes have occurred, it is still important to review your coverage when assessing your overall financial plan. Insurance coverage is a tool in your financial tool kit that will serve as a significant piece of your post-retirement income as well as your legacy plan.
It is important to keep track of all beneficiary designations, and not only on insurance policies. Retirement plans such as an SEP, IRA, or 401(k) allows a participant to designate a beneficiary. This underscores the need to periodically review your estate plan as well as your insurance policies, as each policy or instrument will contain separate beneficiary designations (and default provisions for distribution in the event of your death). In some cases, it can be beneficial to designate a trust as the beneficiary of a life insurance policy, which allows for greater control of how funds will be used.
Even if your will or other legal agreements stipulate distributions to specific beneficiaries, the beneficiary designations on your policy documents could take legal precedence. To name one example, in Herring v. Campbell (2012), the Fifth Circuit Court overturned a lower court’s decision and awarded a deceased plan participant’s benefits to his biological children rather than his stepsons, even though the deceased had listed his stepsons in his will and Texas probate law allowed for “equitable adoption.” (*1)
One question to consider, in addition to coverage levels, is the type and structure. Typically, term life insurance makes more sense during the earlier years and when income is lower, as it provides an immediate safety net to protect against the financial impact of sudden death. Life insurance is only one part of the overall insurance picture. At some point, the need shifts. Different types of coverage, such as long-term care insurance, become more appropriate. Also, certain types of assets may need their own insurance policies, such as fine art, wine, or cigar collections that have substantial value.
Due to the COVID-19 pandemic and other factors, new tax law changes are taking place, (*2) including tax laws regarding income and capital gains tax rates for high-earning individuals. (*3) If you believe your income may reach levels high enough to be impacted by the new tax laws, options and strategies may be available for sheltering some income and assets. Investing in life insurance policies can in some cases offer tax advantages over other vehicles.
If you’re interested in evaluating your current insurance coverage as it relates to your financial plan, please call 866.888.6563 or contact one of our offices today to schedule a consultation. We look forward to working with you to help you look toward the future with confidence.
Cypress Wealth Services is an independent RIA firm providing financial planning and investment management to high net worth individuals, families, business owners, and institutions. Cypress Wealth Services comprises professionals with diverse backgrounds and extensive experience and qualifications. Cypress Wealth Services is uniquely qualified to serve a broad range of client needs, and their experience and expertise act as a foundation for their client service process. The firm uses The Second Growth, which focuses on efficiently protecting, growing, and transferring to their loved ones the wealth and legacy a person has already built. With financial advisors in Palm Desert, CA, Tustin, CA, and Anchorage, AK, the firm serves clients across the country in Wealth Management Services, Fiduciary Services, 401(k) Design and Management, Investment Reporting Services, Financial and Retirement Planning, and more. For more information, visit www.CypressWS.com or call 760.834.7250.