Do I Need Life Insurance?


Something about the fall makes people start to wonder about life insurance. I can't explain this phenomenon, but I can give you a little primer on how life insurance works...and doesn't work. Let's start with this, though—a lot of people do not need life insurance. Are you one of them?

First, check to see if you fall into one of these categories:

1. You Are Someone's Financial Support.

The real purpose of life insurance is to fill in for the financial support that one person is providing for others if the provider dies. If someone (your children, your partner, your parents, etc...) is counting on you to provide for them, life insurance probably makes sense. How much the policy is worth and how long you want that coverage for will depend on the costs you are trying to cover.

2. You are a business owner.

Insurance companies provide "key person" life insurance policies to help cover the costs to the business of losing a key employee or owner. Those costs can range from hiring someone to fill the "key person's" place to paying off their family as shareholders, to paying the costs to shut down the business. Notice that unlike the category above, the beneficiary of this policy isn't a person—it's the business, itself. Sole proprietors are generally fine to use a standard personal life insurance policy, instead.

3. You are working with an attorney to avoid estate tax problems.

Trust & Estates attorneys often make use of insurance policies to move wealth to an heir while keeping down taxes. In most cases, this becomes an issue if your estate is worth more than your state and federal estate tax exemptions (an impressive $5.43 million for 2015 for the feds but $1,000,000 for my state of Massachusetts). But imagine you own a large family property or family business, both of which could easily top exemption amounts. Your attorney might talk to you about an insurance policy that allows your family to pay the estate taxes without selling up. As you might have guessed by now, if you are buying insurance for tax purposes start by talking with your attorney, rather than your insurance agent.

Don't fall into one of these three categories? Then you probably don't need life insurance. And that's good news, as it means you can start putting the money you might have spent on premiums into something you can enjoy while you are still kicking around. If, on the other hand, you do think you need life insurance, stay tuned for my upcoming post on understanding the kinds of life insurance out there and how they work.

If Your Marriage Just Became Legal


Congratulations to everyone in the U.S. who became legally married thanks to our recent Supreme Court ruling! If this is you (or if you plan on getting married, regardless of court rulings), do a quick check on these financial issues:

  1. Pay attention to your retirement account contributions this year. The amount you can put into a tax-deferred account often depends on whether you are married and what your spouse is earning and/or contributing. Make sure you review your retirement account contributions now, rather than at the rush at the end of the year!
  2. Contact your lender if you have federal student loans and are on an Income Based Repayment (IBR) plan; if your spouse is also paying student loans, your IBR payments should decrease.
  3. Revise (or create) your will and related documents to show your new status;
  4. Check to see who the beneficiaries are on your life insurance policies;
  5. Check on the beneficiaries listed on your retirement accounts;
  6. Get ready for changes in your income taxes—we tax married couples more than we do two single people living together;
  7. Feel free to give more—gift tax rules allow you to give to your spouse tax-free. And each spouse gets to use the gift tax exclusion on gifts you are jointly giving to someone else (that means you and your spouse can give $28,000 tax-free this year).
  8. Revise those estate plans (if you had any to begin with). The Federal Estate tax for 2015 begins on estates valued at $5.43 million, so in all likelihood, this was not causing you any stress to begin with, but if it was, your new marital status may be reason to change everything (go talk to your Tax & Estates Attorney).

And if you had filed a marriage certificate that was not honored because of your same-sex status, you might be able to revise previous tax returns. Check with your accountant.