QUESTION: I am in my mid-40s and the father of three children between the ages of 13 and 17. My 80-year-old mother is also totally dependent on me for support.

I have, over the years, built up a good life-insurance portfolio because I recognised the need for family protection in the event of premature death, as well as the need to have funds available in the event of critical illness or disability.

There is a problem: My family is beginning to feel the effects of the weak economic conditions, so our income flows are not as consistent and as strong as they used to be. We have several fixed expenses, including the insurance premiums.

I have been seriously toying with the idea of reducing my life-insurance portfolio by surrendering some policies or lapsing others. Do you think there is wisdom in what I am thinking of doing?

- BB

PFA: It is the Christmas season, but life insurance is not something you should toy with. Apart from your financial circumstances and the increasing needs of your family, what has changed since you bought those policies? It seems to me that less coverage is not what you need now.

You had good reasons for buying those policies in the first place. Your primary reason was, no doubt, to provide income for your family in the event of your premature death.

Insurance has a way of providing income when it is needed most - at your death for your beneficiaries, when critical illnesses, such as cancer, strike, or when you are unable to work due to disability resulting from an accident or illness.

Your children are at critical stages of their lives. At their ages, I would expect them to be in high school. Next, they will move on to tertiary-level education. This is not cheap.

Remember your mother also. She could outlive you. You would want to know that resources are available to provide for her care if that situation arose.

Should death rob them of you, your family may need funds to settle your estate promptly. It will also provide funds to pay any debts you may have outstanding at the time of your demise. Insurance may not provide a sum equivalent to what you would have worked for if you had lived longer, but it fills the gap at that most critical time.

Consider other ways to solve your problem. Which expenses can you reduce? Although this is not my preferred option, if you absolutely must do so to keep your policies in force, use some of the cash values or investment values they have built up and replace them when your situation improves - if that is allowed. You still have much left in you, so consider your current circumstances as temporary.

If you are thinking that you may be able to restore your coverage in the future after lapsing or surrendering your policies now, consider the following. You may lose your insurability in the future due to changes in your health. Even if you do not, you may be 'rated' by the insurance company, meaning you will be required to pay a higher premium than would normally apply at your age. In any event, buying insurance at a later age, even if your health has not deteriorated, will cost you more.

Restoring your portfolio later will reduce the time available to benefit from the earning of tax-free income on your policies - depending on the type of policies.

You made no mention of your wife having insurance coverage. If she does not, I suggest you two examine how the family's position may be enhanced by a suitable insurance programme for her.

Tax-free income

Life-insurance cover-age assumes less impor-tance in your financial plan as your financial position gets stronger and as the level of dependence on you declines.

You have not reached that stage as yet. Your children still need your support. Granted, they could conceivably borrow to fund their tertiary education if you are not around when that time comes. But would they be able to manage if you were to leave them before that time?

Lest you forget, if you have policies that generate cash values or investment returns, you may effectively see them as a part of your retirement fund, built up with tax-free income.

Do all you can to preserve your life-insurance portfolio. As an effective risk-management tool against financial loss, it offers financial protection for you and your family.

For free counselling on money management and personal finance, email: finviser.jm@gmail.com.