What Next After You Buy Your Life Insurance Policy?
A lot of factors go into the determination of the life insurance policy which is perfectly suitable for your needs. In addition, just like other parts of your total financial plan, the insurance program does not come to an end the time you decide on the suitable policy and purchase it.
There are some actions and decisions you should take with regards to your life insurance policy and that includes who should own the policy as well as the plans you have for funding the premiums. Also, it is necessary to monitor the policy on a regular basis so as to ensure it keeps performing up to expectation and maintain suitability for your objectives. All these factors shall now be considered one after the other.
There are different options available when you are trying to determine who ought to be the owner of your life policy.
There is an option under which the insured owns the policy. This particular option has been described as that with the highest flexibility as it gives adequate room to make amendments such as the selection of designated beneficiaries or termination of the policy. On a general outlook, the proceeds of the policy are made part of your estate. That is majorly for taxation purposes upon death.
The second option is where the policy belongs to the spouse or any other member of the family. In this option, your control is reduced particularly where you are the or who is insured. It, however, has the potential for different tax deferral advantages. Generally, upon death, the proceeds of the policy are not included in your estate. Rather, they are made a part of the estate of the policy owner even in a case where the policy owner dies before you.
Another option is where the owner of the policy is the irrevocable life insurance trust, also called ILIT. The life insurance policy under this option is deemed to be an irrevocable gift given to the trust and the control of the policy is in the hands of the trustee. The general rule is that the proceeds of the policy are excluded from the insured’s estate as well as that of the beneficiaries of the policy. As such the trust, in this case, offers potential asset protection and tax advantages.
After making the decision as to who the policy owner would be, the next important decision is that of the suitable funding method for the premium putting into consideration your circumstances and selection. Just like a lot of life insurance policyholders, you may find that the most suitable is a combination of different strategies. When determining how to make your premium payments, you should consider these following techniques.
- Outright Payment
- Loaning the fund to the trust or policy owner
- Payment with existing trust asset where such exists
- Payment with proceeds gotten from the termination of grantor retained annuity trust
- Splitting cost with an additional party
It is important to ensure that the premium payments are made on time so you avoid forfeiting the benefits. Also, policies that are owned by trust have special administrative requirements and you may have to regularly pay attention to these requirements.
As soon as you set up your policy, you need to take conscious effort to carry out a periodic review to ensure that it satisfies your objectives, particularly where major life events like marriage or divorce happens. A periodic review of the insurance carrier’s financial strength for different issues that could likely have an effect in its survival on the long run or its ability to make payments should also be carried out.
Insurance providers, as well as life insurance policies, can be quite complex to grab and it is advisable that you set up a meeting with an insurance professional or a financial advisor whom you trust.
Such an expert would help you when you are choosing a policy as well as when you have to deal with the administrative details. Also, these experts can help in monitoring your policy and also carry out a routine reevaluation of your policy’s features to ensure its propriety for your financial goals and personal circumstances.
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