The reason you should consider reviewing your life insurance policy annually is to explore changes that recently occurred and decide whether or not you need additional coverage. If you choose to increase the amount of coverage, you will be required to apply for and purchase a new policy. As a term and whole life insurance premiums tend to increase with age, the new rate of premium will be higher for the additional policy.
Here are a few examples of life events that can shift your finances and trigger a change in your coverage needs:
1. The birth or adoption of a child
If you have a baby on the way or have already a new member of the family, you will want to ensure that your insurance policies are in order to properly secure your family’s financial future. In the event that you or your partner were to die, that protection will help cover the resulting loss of income for the family.
2. Beginning a new job
There are very few things that can help you in accomplishing your goals and getting the job you’ve been hoping for is one of them. Be sure to check in with your agent to ensure that your policy still meets your needs when you start a new job or even if you’ve been recently promoted. It’s vital to account for extra income and also consider any changes in your employer-based life insurance policy as well.
3. Starting a new business
If you have started a new online store or opened a brick-and-mortar commercial venture, your investments most likely came from a big loan or as a result of a substantial personal contribution.
If you had saved the funds you have invested for an inheritance, then you might require an additional life insurance policy to account for the difference and ensure that your loved ones don’t have to compromise on the payout in the event of your demise. This is especially the case when taking a loan, as in the event of your demise, your loved ones would be responsible for paying it back and you would want enough coverage to meet this new obligation.
4. Taking on more debt
Maybe you just acquired a home equity loan last year or got a loan to consolidate credit card payments to lower your interest rates. Such minute shifts in finances can lead to a big difference when your loved ones are dependent on a fixed income.
This makes it crucial to bring an updated monthly budget to your annual life insurance review. Using it will allow you to ensure that you are leaving behind enough funds for your beneficiaries to take care of the bills and still afford to cover their living expenses.
5. Changes in parent’s health or living conditions
Depending on the severity of their medical condition, an aging parent may be required to move. Whether it is moving to your home or an assisted living facility, you will likely incur a greater monthly financial load.
If you have already experienced this change, it may be time to consider purchasing an additional policy so that your beneficiaries can cover those increased costs adequately. It is also prudent to consider final expense coverage for the elderly parents during the annual review.
6. Getting married or divorced
Getting married or divorced brings about huge changes in one’s life. Whether you are engaged or married, you might want to include your partner’s name as a beneficiary on your life policy.
If you were recently divorced, you may want to verify that your current beneficiary designations are still correct. If this step is ignored, previous beneficiaries can also be legally entitled to some of that payout that you might have intended others to receive.
7. Children moving out or off to college
Our kids tend to move on after they grow up. Young adults might want to go to college while they are still financially dependent on you. It is prudent in that case, to verify that the death benefit covers them enough to continue their education and live independently.
If your children are adults and financially dependent, you may need to consider allocating the death benefit to your surviving spouse. This will help shield your partner from financial loss in the event of your death, especially if you are the sole earner in the family.
8. Medical diagnosis of a loved one
Issues related to health can emerge at any time and when they do, they can enforce a lot of change in our lives – often quite quickly. When complicated medical conditions progress, they can create a serious dent in your savings. This makes it crucial to take these future expenses into account when reviewing your insurance policy.
9. Purchasing a home
Purchasing a new home should also be factored into your review with your insurance agent. It leads to new mortgage payments and home equity gains in the long run, you might likely want your family to continue living there in the event of your demise.
10. Verify insurance discounts are up to date
When you purchase a new insurance policy, you may be able to save on some of your premiums if the insurance company is offering any discounts on certain policies. Be sure to check with your agent about any such offers and verify that any discounts you may have previously received are up-to-date.