Life insurance can be used for a variety of personal and estate planning needs. To ensure your life insurance policy meets your needs, watch out for these common mistakes:

• Not considering life insurance at all. Life insurance forces us to take a look at our own mortality, a subject most people would prefer to ignore. In fact, one third of all adults have no life insurance at all (Source: U.S. News & World Report, April 6, 2009). But without life insurance, you could be leaving your family in dire financial circumstances if you die. You should thoroughly assess your situation to see how much life insurance is needed to provide for your family.
• Relying on rules of thumb. When deciding how much life insurance you need, avoid common rules of thumb, such as five to 10 times your annual salary. These are general guidelines and are not meant to be a definitive guide to the amount of coverage you need. Because every family has different needs, you should consider factors such as the number of dependents you have, how much money you have in savings, and outstanding obligations, such as mortgages and college loans. You need to determine how much money your family requires annually to maintain their standard of living and how long they will need that money. Once you have these estimates, you can more accurately calculate the amount of life insurance coverage that is appropriate for your family's situation.
• Making your decisions based solely on the premium amount. You should base your policy selection on the amount of coverage it provides, rather than monthly or annual premiums. A wide variety of life insurance policies are available, many designed to meet specific needs. Understand the basics of each before deciding which type is most appropriate for your situation.
• Not selecting appropriate beneficiaries. Estate and tax ramifications should be considered before selecting beneficiaries. For instance, naming your estate as beneficiary could cause the proceeds to be included in your taxable estate. Or, if your spouse owns the policy on your life with your children listed as beneficiaries, the policy proceeds may be considered a gift, subject to gift taxes. Be sure to name contingent beneficiaries in case your primary beneficiary dies before you do.
• Replacing an existing policy without first evaluating it. Look at an in-force ledger statement to determine the policy's current status and growth projections. If you need more insurance, you can always apply for another policy for the additional amount needed. A policy change may require a medical examination and may incur fees and costs.
• Not evaluating your situation periodically. Your life insurance needs are likely to change over time. Thus, you should periodically review your needs to see if changes are warranted.

After earning his BS in Economics from the University of Maryland, College Park, Jack entered the investment business. For over 30 years, Jack has been helping families and businesses throughout the Washington, DC Metropolitan area, and the United States, achieve their financial goals.

Jack lives in Potomac, MD with his wife Toni and their five children.

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