Financial experts recommend having life insurance as part of your financial plan. If you’re among the 52% of Americans who’ve heeded that advice, you’ve taken a key step to protecting your loved ones after you’re gone. But when was the last time you actually looked at your life insurance policy to make sure it’s still appropriate for you? After all, life moves fast and your individual circumstances and the insurance marketplace change frequently, which could mean your existing policy no longer serves you best. If it’s been a while, a review is likely needed.
Personal Changes and Your Life Insurance Policy
Because the goal of life insurance is to financially protect your loved ones in the event of your death, any time you go through a significant life change, it’s wise to review your policy to see whether you need to adjust the beneficiaries, death benefit amount or policy type to ensure that your life insurance coverage still fulfills that intended goal. Here are the most common life changes that call for a policy review.
When you get married or divorced, the change in both your living and financial circumstances should be considered relative to your life insurance. In the case of a new spouse, you likely want to add them as a beneficiary and decide whether your death benefit would be enough to allow them to continue your current lifestyle if something happened to you.
When divorcing, make sure your policy meets all the requirements of your divorce settlement and that your beneficiaries and death benefit reflect your latest wishes.
If you’re financially responsible for more people than when you initially took out your life insurance policy, you’ll want to add them as beneficiaries while also making sure that your existing coverage is enough to support them if you were no longer here. Such dependents include:
- A new baby or adopted child
- A loved one who now needs long-term care due to disability or illness
- Elderly parents who moved in with you
Anytime you switch jobs, you can gain or lose employer-based life insurance, so you’ll want to balance that against any other life insurance policy you own. In addition, if you get promoted or earn a raise, you’ll want to make sure that your current death benefit is enough to cover your increased earning power if something happens to you. Finally, your circumstances will change when you retire, so factoring your life insurance needs into your overall retirement plan is important.
When you and your spouse take out a mortgage, it’s a significant financial responsibility that’s based on your joint income. Think about whether your other half could handle the mortgage payment, homeowners insurance, property taxes and home upkeep without you, and adjust your life insurance accordingly. Do the same for other large debts, such as a home equity line of credit.
If you use some of your savings, which could have funded your retirement or been passed down to your family, to buy a business or another expensive asset that’s not easily liquidated, think about adjusting your life insurance coverage to make up for it.
Marketplace Changes and Your Life Insurance Policy
Even if nothing is different on your end, it’s still wise to review your life insurance every year because changes in the marketplace could mean that a different policy would better suit your needs in one or more of these ways:
Your age, gender, overall health, lifestyle habits, coverage amount and policy type (term or permanent) all help determine your premium, but there are other, less familiar factors that also affect it. Your annual review may reveal that you can get a new policy with a lower premium for the same coverage amount because of changes in these factors:
- Mortality rates: Used by insurance companies to predict life expectancy, mortality rates are routinely updated, sometimes in your favor, which can yield lower premiums.
- Business expenses: Efforts to streamline operations can lower an insurance company’s overall expenses, which means it can offer lower premiums without negatively impacting its profits.
- Investment earnings: The same is true when a bullish market makes it possible for insurance companies to make higher returns on their investments.
Although term life policies are the most familiar to the general public, a permanent life insurance policy, which has an investment component on top of the death benefit, might be a better option for some people. A routine review of your policy can ensure you have the most appropriate type of life insurance considering your financial goals and needs.
If your life insurance company has undergone substantial changes in its leadership, business model or operations, you may find that another company better fits your values as well as your financial needs.
Once your life insurance review is complete, you can move on to other steps to put you on the path toward a more secure financial future.
Editor’s note: Quorum is not affiliated with any of the companies mentioned in this article and derives no benefit from these businesses for placement in this article.