Common Life Insurance Traps and How to Avoid Them
Beware these common traps made with life insurance that can reduce its value to your family ... or leave you paying a bundle to the IRS. Trap: Owning too much life insurance, too long. During the years you are working and raising a family, you probably need a substantial amount of life insurance to protect your family against the possible loss of your income. But as your senior years approach - with your children grown, the mortgage paid off and retirement accounts funded - your insurance needs may be sharply reduced. For many, the justification for owning life insurance is to finance estate taxes. But this need has been reduced by recent tax law changes that increase the estate and gift tax exemption amount for individuals to $1 million. By paying for unneeded insurance protection, you pass up the opportunity to acquire higher yield investments. STRATEGY Review your insurance needs in light of changes in your personal circumstances and in your estate tax exposure. If you find that you