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Now’s the time for a personal estate and insurance ‘audit’

The start of a new year is a great time to take measure – of financial progress, health matters, and personal goals and objectives.
Susan Yates pic

The start of a new year is a great time to take measure – of financial progress, health matters, and personal goals and objectives. If you are taking a look at your personal finances, find your life and health insurance documents, as well as your will, and make sure you review them too. Here’s a summary of the items to consider.

Changing circumstances

The first thing you’ll want to take a look at is how much coverage you have, from what sources, and how much you are paying. For instance, if you’ve changed jobs or retired in the year past, you may have lost group life and/or health coverage that was provided by your employer. Do you need to replace that coverage or is it no longer required?

Many personal events can impact the need for life insurance. Taking on or discharging a mortgage affects your need for insurance to cover the mortgage debt in case you die. You may also want to take a look at how much you are paying for mortgage insurance through your mortgage provider. Spend a little time shopping around. Mortgage insurance from your mortgage provider can typically be cancelled at any time. Compare apples to apples to see whether you can pay less. Just ensure your new replacement policy is in your hands before you cancel the old policy.

Check before you cancel a policy

This is true of all life insurance. Life insurance can be easily cancelled by a letter to the insurer. However, if the policy has cash value, such as a whole life policy or universal life policy, it is probably wise not to simply stop paying premiums if you no longer want the insurance. This is because the cash value in the policy can be taken by the insurer for premium payments. Doing so continues your coverage – but you might prefer to receive that cash value in hand.

In any case, if you are changing policies for whatever reason (and make sure the reason for replacing a policy is a clear benefit to you and is not being done to provide the agent with a new commission), make sure you do not cancel the “old” policy until the new policy has been delivered. You may be required to sign a policy receipt with delivery. If so, that confirms the new policy is now effective. Only then should you cancel the old policy.

Beneficiaries

It’s also wise when you have your policy details in front of you to take a look at the beneficiaries you have named. This will be especially true if you have separated or divorced during the year, or your named beneficiary has died. Also, you might just have a change of heart, which can lead to changing a beneficiary or beneficiaries entirely, or juggling the percentage of your estate that you have allocated to each.

If you do not have a contingent beneficiary, you may want to consider adding one. The contingent beneficiary becomes the beneficiary if the primary beneficiary dies. Otherwise if a life insured dies and the beneficiary has predeceased the life insured, payment of the death benefit will be made to the policy owner. If the policy owner and the life insured are the same person, payment goes to the estate of the policy owner.

Life insurance and estate planning review

You may also want to review your life insurance policy and your will together to ensure consistency of purpose. If you have a financial services professional with whom you transact business, it will be wise to conduct this review with his or her help. A complex estate calls for a review with your accountant and/or lawyer, possibly in addition to your financial expert. What should you be watching for?

1. Legislative changes.If there are recent changes in the law that affect the will, these must be incorporated to ensure the will is valid at the time of death.

2. Taxation changes.Similarly, tax rules can change, which may affect how the estate is to be distributed.

3.Personal changes,such as a new family member, or renewal of friendship. Perhaps there has been a change in the family that needs to be recognized, or a long-lost friend has resurfaced. Anyone can be named a beneficiary in a will.

4. Change of province. Provincial laws vary in regards to property, especially if the will was drafted when the prospect/client was a resident in Quebec or has become a resident of the province.

5. Marriage.Marriage revokes a will.

6. Separation and divorce.Separation and divorce do not revoke a will. Divorce will revoke any gift in the will left to the former spouse and appointment of the spouse as executor. Reviewing a will is also a good time to consider whether there are any assets that carry beneficiary designations (such an RRSP or TFSA) in favor of a former spouse that need to be changed.

7. Death of spouse.The death of a spouse may cause the surviving spouse to re-examine how assets are to be distributed. Also, new contingent beneficiaries may be required.

8. Inheritance.Experiencing a sudden change in wealth is one of the life events that require people to review their will. Bequests may change as a result of the change to the size of the estate, and it will be essential that the residue of the estate will be distributed as intended.

9. Change in assets or personal property.If assets or property that are no longer owned are described in the will, then the will should be revised to eliminate reference to them.

10. Add or remove a charity.In later life individuals often become attached to certain causes, charities, or organizations, such as a favorite health concern. Or an individual may choose to replace an already-named charity with another.

Financial housekeeping like this is a great, and necessary, exercise to keep your affairs in order. Make it an annual event, and also remember to review your documents whenever major events occur in your life. That can be at any time throughout the year.

Courtesy Fundata Canada Inc. © 2015.Susan Yates is president of the Centre for Life Insurance and Financial Education (clifece.ca).This article is not intended as personalized advice.