Reviewing Your Life Insurance Policy
Even if you are comfortable with your current level of coverage, taking the time to review your life insurance policy may be able to help you significantly improve your current financial situation. Naturally, as your life changes, the amount or type of life insurance that is most appropriate for you may also change as well.
Fortunately, taking the time to review your life insurance coverage is likely much easier than you might initially assume. To get started, you should begin by listing any of the financial circumstances that have changed since your policy was initially purchased. This could include a wide variety of different variables including your family situation, your living situation, your work situation, and many others.
In this post, we will discuss some of the most common changes that occur in people’s lives and how these changes might impact your current life insurance needs. By developing a keen awareness of how the details in your personal life impact the need for life insurance, you will be in a much better position to find the policy that is right for you.
1. Getting Married or Getting Divorced
Naturally, once you have gotten married or divorced, your familial and financial situations will have both significantly changed. Once you have gotten married, your finances will be heavily tied to those of another individual. Similarly, if you ever get divorced, you may either lose a source of household income or lose a financial dependent. Either way, your life insurance situation is something that will need to be revisited.
If you do not have any life insurance coverage, marriage is one of the most common situations where people choose to apply. A good life insurance policy will be able to assure that your loved one is financially provided for even if you are no longer around. Variables that are taken into consideration include your respective ages, whether you have any children together (or plan on having any children), and your long-term financial objectives.
>> Read more: Life insurance beneficiary rules for your spouse
>> Read more: How life insurance policy works in a divorce settlement?
2. Moving, Purchasing a New Home, Relocating to a New State
Once you move, your day-to-day financial situation may also be significantly different than it once was. Both your mortgage and your life insurance policy are important components of your greater financial portfolio and will need to be taken into consideration simultaneously.
Moving to a new state, city, or even a new country can also heavily influence your financial status, For example, you may be subject to a new set of taxes or financial regulations. Even if you decide to keep things exactly where they started, this is certainly a reasonable time to reevaluate your current level of life insurance coverage.
3. Having a Child or Gaining an Additional Financial Dependent
Naturally, one of the biggest life changes you might experience is having a child. But despite all of the joy that adding a new member of your family may bring, it is important to remember the diverse set of financial responsibilities that come with a child as well. Typically, raising a child will cost at least $15,000 per year—being financially diligent will be even more important if you currently have multiple children.
Generally speaking, the level of life insurance that will be most appropriate for you will be directly related to the number of financial dependents that you currently have. If you want to provide your children with financial protection in the short-term, but hope to build equity you can access once your children have become financially independent, then you may want to consider a permanent life insurance policy with an attachable cash value.
There are plenty of other situations where you may acquire an additional financial dependent as well. For example, if you have a parent that moves in with you and is in need of financial support, you may want to consider naming them as your beneficiary. When creating a policy, you should begin by thinking “who would be financially hurt if I was no longer around?” and move forward from there.
Get affordable life insurance quotes online with a simple search
4. Changes in Employment or Monthly Income
As stated, life insurance is a significant portion of your overall financial portfolio. Consequently, any time your financial status experiences a change, your life insurance coverage may need to be adjusted as well. If you have received a promotion or have switched to a higher paying job, then you may be able to afford a level of life insurance coverage you were originally forced to pass over. Fortunately, many life insurance policies can be easily increased or converted as these sorts of situations begin to arise.
Likewise, if you lose your job or have a decrease in discretionary income, then your current level of life insurance coverage may need to be adjusted downward. Furthermore, even if your income level remains the same after changing jobs, you might still want to revisit the amount of life insurance coverage that you currently own. For example, if the amount of life insurance coverage provided by your new employer is different than it was at your last position (whether increased or decreased), then you may need to change the amount of supplemental coverage that you own in response.
>> Read: Buying Life Insurance Through Work
5. Other Significant Financial Changes or Health Changes
In addition to changes in your income, numerous other events can impact your ability to provide for your family. For example, even if your income remains steady, changes in your wealth (such as changes in the stock market or real estate values) can subsequently have a significant impact on the amount of life insurance you can currently afford. Inheriting money from a deceased relative, for example, is one of the many common ways that your financial status can quickly change overnight.
On the other hand, significant changes to your health and well-being can also have a major impact on your current need for life insurance. If you currently have no coverage and have reason to believe that you will no longer be around within the next few years, then you may want to consider getting a guaranteed life insurance policy or—at the very least—a no medical exam life insurance coverage.
Positive health changes such as losing weight (if you’re obese), quitting smoking, and lower your blood pressure may enable you to save on your monthly insurance premiums. If you were once considered a high-risk policyholder, but that risk is now resolved, many insurance companies will be willing to adjust your premiums downward.
6. Needing to Change Your Beneficiaries
Lastly, any events that result in the need to change your beneficiaries will also create a situation where your life insurance coverage ought to be reevaluated. If your beneficiary passes away, is no longer involved in your life, or has become financially independent on their own, then it may be time to think about your current life insurance situation.
The bottom line is, there are many different reasons that your financial situation may change and—though you may be paying your monthly premiums automatically by now—every time one of these changes occurs, you will want to review your life insurance coverage. Whether you decide to increase coverage, decrease coverage, convert to a different policy, or leave things as they are, taking the time to think about where you stand certainly never hurts.
Things to Keep in Mind When Reevaluating Your Life Insurance Policy
Reevaluating your life insurance coverage is a fairly straightforward process. However, it is important to recognize that there are many moving variables involved. If you are uncomfortable reviewing your policy on your own, then you may want to contact your life insurance provider directly.
Here are some questions you should ask yourself when reviewing a life insurance policy:
• How many people are currently financially dependent on my income? What is my relationship with these people?
• What is my current financial situation? What portion of my overall financial portfolio consists of life insurance coverage?
• What are the major changes that have occurred in my life since I last reviewed my life insurance policy?
• Now that I can afford more life insurance coverage, is an increase in coverage the best use of my income?
• In the event of my death, would all of my loved ones still be financially secure?
Once you have taken the time to answer these simple—but important—questions, it will be much easier for you to recognize the life insurance policies that are most appropriate for your financial situation. Even if none of the major life events mentioned in this article have actually occurred, it is still a good idea to review your policy every few years.
Life insurance is a powerful financial asset that is designed to provide you and your loved ones with financial protection in a wide variety of different situations. As life changes, so will the level of life insurance coverage that is most appropriate for you. By taking time to compare the amount of coverage you currently have against the amount of coverage you now need, you will be in a position to make the objectively best financial decisions.