Change happens. Children are born. Investments grow. People get older, and hopefully wealthier. The list of potential lifestyle-altering changes that can occur for any person or family is virtually endless. As you must adapt to the changes in your life, so must your life insurance plan adapt to those changes.

By reviewing your life insurance plan every three to five years, or as needed, you can redesign your plan to suit your current situation. Doing that could potentially save you money and heartache in the long run. If you become more financially independent as you get older, or if your financial responsibilities to others diminish, you can lower or eliminate your life insurance coverage and use the saved premium payments for investing or enjoying life. If you are not financially independent yet, and your financial responsibilities increase, you may need to increase your life insurance coverage so that you don’t leave those you care about with a financial hardship after your death.

A trust is a legal document that establishes a relationship in which one person (trustor) transfers an asset to another person (trustee) who manages and controls the asset for the benefit of a third person (beneficiary). A life insurance trust is a trust relationship established specifically to own a life insurance policy. Having a life insurance trust could potentially benefit your life insurance plan, and ultimately your heirs. It fact, not having one could be a mistake that leaves an irresponsible beneficiary broke and penniless.

By having your life insurance trust as the owner and beneficiary of the policy you could create several potential advantages. First, you can better insure that your lost income is replaced and continues for as long as it needs to–the main goal of life insurance. Second, you can insure that the life insurance proceeds are invested according to your instructions. Third, as I eluded to above, you can prevent the life insurance proceeds from being paid in a lump sum, only to be squandered by financially irresponsible beneficiaries in a short time. Fourth, you potentially remove the life insurance proceeds from your estate, avoiding probate and estate taxes. Depending on your unique situation, thousands of dollars could potentially be saved by implementing this strategy.

A word of warning: if for some reason you decide to purchase a cash value type life insurance policy, DO NOT put it into a life insurance trust. Because a life insurance trust is irrevocable, you will not be able to borrow your cash value from those policies. However, if you follow the strategy of only buying term life insurance, you can get around the irrevocability issue. To effectively “revoke” an irrevocable life insurance trust connected to the term policy, you just stop paying the premiums.

If you feel that establishing a life insurance trust may be the right strategy for your life insurance plan, consult with with your financial advisor and an attorney knowledgeable in trusts.

It may sound obvious that you should create a life insurance plan, but it would surprise you how many people enter the life insurance buying process without a plan. Failing to create an adequate life insurance plan can cost you.

For example, if you are sold a policy with a $1,000,000.00 death benefit when a carefully thought out life insurance plan would have revealed that you only needed $500,000.00 of coverage, you would have spent significantly more than needed for adequate protection. That is money wasted on premiums that could have been used to invest, or used to enjoy your life now.

Another potential consequence of failing to plan is that, in the event of your untimely death, the proceeds from the policy could end up in probate court or end up being squandered away by beneficiaries unskilled in money matters–both costly symptoms of inadequate planning.

How do you create a life insurance plan? It’s not hard, but you will need to answer several questions, determine your needs based on the answers, and write it all down. Here are the basic questions you need to answer:

1. Do I need life insurance?
2. How much coverage is needed?
3. How long will the coverage be needed?
4. What kind of life insurance policy is needed?
5. Who should benefit from the policy?

To adequately answer the questions, you can apply the buying strategies I share with you in this blog to your own situation. How you answer each question will affect what you pay in premiums and ultimately how successful your life insurance plan will be at meeting your goals.