I recommend that you review your life insurance every year. In today’s economy it is even more important to take a couple minutes and review your needs. Think of it as a checkup. Just like your annual doctor and dentist check up, it’s preventive medicine to help maintain your family’s financial security. The main reason to do this is that needs change over time, sometimes more rapidly than you might realize.

This review is a painless process. Simply check all that apply below. If you have at least one item checked contact your financial professional and discuss them. If you have no items checked you are in good shape for the upcoming year, however if something should change, make sure you take the time and address the changes.

Checklist:

___My current life insurance program is less than 6 times my annual income.

According to the American Council of Life Insurance, this is the least amount of life insurance you should own. So if your income is $75,000, you need at least $450,000 of life insurance.

___My annual income has increased by 10% of more since I last updated my coverage.

A key purpose of life insurance is to replace lost income. If your current coverage is not in line with your needs, you could be exposing your family to risk.

___I have had a change in my family status.

The births of a child, marriage, divorce, child leaving home are all common family status changes. These events often indicate the need to adjust your life insurance.

___My spouse or I recently resumed or discontinued work.

Such changes create shifts in income and indicated the need to review your life insurance needs.

___My family would have an immediate cash flow problem if something would happen to me.

One purpose of life insurance is to provide cash to help your family at the exact moment it is needed the very most.

___My family would have difficulty maintaining their lifestyle if something would happen to me.

Another purpose of life insurance is to provide sufficient funds to help enable your family to stay in the home they are currently in and maintain their present lifestyle.

How much life insurance do you currently have?

$250,000 of coverage? $1,000,000? That may seem like a lot, however considering that is your income stream, not your net worth, it provides the best measure of your family’s standard of living. If you can’t earn an income how much money would it take to replace your income stream for a 20 year period? The precise answer depends on interest rates and withdrawal amounts; you might be surprised at how much money would actually be needed!

For example, it takes $500,000 to provide an income stream of $40,000 a year for a 20-year period, after which the entire amount is depleted.*Similarly, $1,000,000 generates $80,000 a year, for 20 years.

*For illustration purposes only: based on the assumption that the principal earns 5% after taxes in today’s dollars, with principal interest to be depleted after 20 years of withdrawing an amount equal to 8% of the original principal each year.

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