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7 Common Life Insurance Mistakes
You Should Not Make

The purpose of this commentary is to spotlight 7 of the most common mistakes involving personal and business life insurance. Each has potentially serious consequences in terms of expense and aggravation and each can be avoided or, if found in time, corrected quickly and inexpensively. There is a relatively simple strategy to each of these common mistakes.

Who cares if these mistakes are not found and fixed? Certainly not the IRS. It profits from the mistakes of omission or commission made by others. The parties who care most about these mistakes are those families, relatives, friends, businesses, and charities that must make do with less - or do without!

Mistake 1: You've named your estate as your beneficiary.

Comment: Naming an estate as beneficiary of life insurance typically dooms the proceeds (in most states) to needless state inheritance taxes or to a higher rate than if the proceeds were payable to a named beneficiary.

Mistake 2: You haven't named at least 2 "backup" beneficiaries.

Comment: If your beneficiary dies before you do, even if only by minutes, and no change is made to your policy's beneficiary designation, the proceeds will be paid to your estate. This would needlessly subject the proceeds to all the problems of Mistake 1 just as if your estate were named as beneficiary.

Mistake 3: Your policy proceeds are payable outright to minor children or grandchildren or to a handicapped or emotionally immature or financially irresponsible individual.

Comment: Improper disposition of assets is one of the most frequent and serious of all estate planning errors. It occurs when the wrong asset goes to the wrong person, at the wrong time, in the wrong manner, or both. Consider the impact if tens of thousands of dollars of cash were paid outright - tomorrow.

Mistake 4: You don't check your policies at least every three years.

Comment: An astounding number of policies are payable to ex-spouses or others whom the insureds would not have wanted to receive the proceeds. Children born after a policy was purchased are often inadvertently omitted. Sometimes, the person named is long deceased.

Mistake 5: You own all the insurance on your life.

Comment: If your total estate will never exceed the federal exclusion amount (currently $1,500,000), then federal estate taxes may not be a problem. But if your estate is likely to be greater than that amount over time, your ownership of insurance on your life may lead to needless federal estate tax.

Mistake 6: The amount of personal coverage is inadequate for your family's financial security or estate planning goals.

Comment: With an ever increasing deficit, the federal estate tax at this time is far from dead, and state death taxes can be very high. Will your survivors have enough - after taxes, payment of debts and other expenses - for food, clothing and shelter (in other words, the bare necessities)? How about education?

Mistake 7: You haven't checked to see if your employer, business, or practice can provide insurance on a more efficient basis.

Comment: If you own, control, or have a voice in the decision-making process of a closely or publicly held business, the use of business dollars (as opposed to after-tax, out-of-pocket personal dollars) may be much more cost effective (in terms of tax and cash flow) to provide financial security for your family.

CONCLUSION: Life insurance is one of the most important purchases you or your business will ever make. As is the case with any important purchase, it is essential to avoid the pitfalls into which you can so easily fall.

There's much, much more to this. Please feel free to call to discuss these or other issues of interest

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

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