Last Updated on September 17, 2020 by Andrew Lee
Life insurance is a critical aspect of any well-designed, sound financial plan. It helps strengthen the financial future of you’re the people you love and will, at one point, leave behind. Although there will come a time you’ll no longer be with them, your life coverage gives you a way to still provide for them.
It doesn’t mean that all you have to do is to purchase a policy and keep paying your premiums. Just as important is keeping track of the major changes in your life and your family’s changing needs, then making sure you adjust your coverage based on these alterations.
As the Insurance Information Institute explains, you should review your life coverage requirements once a year, at the very least. This is especially true when you underwent a significant change in your life situation. Some of these include:
- Birth or adoption of children
- Significant health changes
- Kids going to college
- Taking out a new mortgage or refinancing an existing one
- A loved one developing a major health issue requiring long-term care
These are just some of what you may experience throughout your life that will have a considerable effect on your insurance requirements. However, these alone should already make you realize just how important it is for you to regularly review your coverage.
What to ask
As you review your policy, make sure your assessment can answer these critical questions:
- Will your premiums and benefits change? If so, how often?
- How many benefits will the policy build up?
- What are the guaranteed parts of the premiums or benefits?
- Do you have the option to take out against the policy’s value in case you develop a critical illness?
- Does the insurance company provide other payout options, such as pre-death benefits like an annuity?
One of the biggest reasons you should conduct a careful re-evaluation of your life coverage is to ensure it sufficiently meets not just your needs, but those of your loved ones too. By asking these questions, you can figure out which areas of your policy to make necessary adjustments to.
You should also check your insurer’s financial stability. This way, you can make the company that handles your coverage will have the ability to still make the payout in the future. The government entity to contact for more info depends on where you live. For instance, AK consumers should contact the Arizona Insurance Department, while CA residents should seek help with the California Department of Insurance.
Increase your coverage
There are many different ways that your life can change, and having kids is one of them. As your family grows, so does the expenses you have associated with taking good care of your children. And education, specifically for college, boosts this to higher grounds. One of the rules of thumb when purchasing coverage is to add at least $100,000 to the base policy value for every child. So to keep your kids in school, bump up your coverage with this amount. Other situations wherein you should increase your coverage is when you or someone else in the household has developed a major health issue, as well as when you take out a new mortgage or refinancing your existing one.
Naming who to leave your benefits to
As the years go by, it’s likely you would want to make changes to your beneficiary. For instance, a certain member of your family needs more financial support than the rest. You may want to either change the primary beneficiary named in your policy or keep them all but alter the distribution of the proceeds. It’s also possible that you had a divorce. Whichever is the case, contact your insurance provider right away.
The key takeaway here is that regularly performing a thorough review of your life insurance policy is essential to make certain it accommodates the expanding (or decreasing) needs of your entire family.