When should I review my life insurance policies?
Buying life insurance gives you the peace of mind knowing that your family will be financially protected if something happened to you. But your policy isn’t a set it and forget it product and it’s important to give your life insurance policy a review once in a while. It’s not something you are thinking about on a regular basis, so it can be easy to forget. Out of sight, out of mind, right?
It’s important to perform life insurance policy reviews because as your life changes, your insurance needs may change as well. Life insurance policies should be reviewed every few years and especially after any major life changing events.
» Calculate: Life insurance needs calculator
Know the Details for Your Life Insurance Policy (and Your Spouse’s)
Before performing a life insurance policy review, make sure you understand your policy. If your spouse or partner has a life insurance policy, it’s equally as important you understand theirs as well.
Term insurance generally has lower premiums in the early years, but does not build up a cash value you can access. Cash value policies come in the form of whole life, universal life or variable life insurance. It’s important to know which type of policy you own, and how the benefits are paid if something happens to you and/or your spouse. People often don’t realize that the beneficiary has to send in a claim to the life insurance company in order to obtain the death benefit with an insured dies. The life insurance company won’t know if their client has died.
If you or your partner has a term life insurance policy, take a look to see if it has a convertibility or renewability option. These are important features if someone were to become insurable or terminally ill. If your term policy does not have these options, it may be more important for you to consider buying a new, additional term life insurance policy to extend how long you will have coverage for if you think there is a chance you may need insurance coverage in the future.
» Learn more: Why Does Having a Term Conversion Option Matter?
7 Common Events When It’s Important for Life Insurance Policy Reviews
1) Marriage or Divorce
Getting married soon? Now that your family is growing and you will be sharing finances with another person, your life insurance needs may change. Many couples rely on two incomes to pay day-to-day expenses. If you died unexpectedly, your spouse would quickly feel financial struggle in addition to the emotional and physical devastation from losing you. Term life insurance will provide income replacement in the event of your spouse’s death.
Tip: Use the individual’s legal name, as in “Elizabeth Marie Bennett,” rather than “wife.” In case of a second marriage, “wife” could be interpreted either as your wife when you bought the policy or your current wife.
Are you contemplating a divorce? There are a number of financial issues to think about and life insurance should be on this list. Update your beneficiaries if necessary. There have been horror stories of people dying and never removing their ex-spouse as the primary beneficiary. If you remarry, this is also a time to review your policy.
» Learn more: Divorce and Your Changing Life Insurance Needs
2) Home Purchase
Did you and your partner decide to buy a new home together? Review your policy to see if your coverage amount is enough to also pay off a mortgage. Again, paying expenses is manageable with two incomes, but could your partner afford to pay for the house all alone? Especially if you have children, ensuring they can stay in the home they are familiar with can mean a lot when dealing with the death of a parent.
Maybe you’re purchasing a second home; a vacation home in Florida, for example. With all the excitement going on, don’t forget to review your life insurance. Any time your housing status changes, it’s time to review.
After purchasing a life insurance policy, it should be reviewed every few years and especially after any major life changing events. Just as our life changes, our life insurance needs change.
3) Child or Dependent
We all know that raising a child is a huge expense and making sure they are financially taken care of is a must. Anytime you add a child to your family, you want to look at your coverage. There’s always an option of purchasing an additional term life insurance policy that will carry you through your kids’ college years.
If you buy a new life insurance policy, consider adding a child rider. A child rider is an “add on” you can purchase with an individual life insurance policy that not only covers the life of your children, but it can be converted into a permanent policy later on in life without the child being required to show evidence of insurability.
Tip: If you want your minor children to receive your life insurance proceeds, you need to designate a trust as the beneficiary or name a trusted adult who will make proper decisions about the care and welfare of your children. Life insurance companies will not pay death benefit proceeds directly to minors. As your children mature, make beneficiary changes as necessary.
4) Employment Change
Did you get a promotion? Along with a big promotion, maybe you decided to get a nicer car or bigger home. Maybe this means you are now sending your children to the best private school money can buy. Do you need more life insurance coverage?
Maybe you got a new job at a different company. Did you have a group life insurance plan with your old job? What benefits does your new job offer? If life insurance isn’t one of them, you need to re-evaluate your life insurance situation.
If your new job does offer group life insurance options, find out if it’s portable—in other words, if you can bring the coverage with you if you left the company. In any case, most group life insurance policies don’t provide enough coverage that individuals with families need and owning a separate life insurance policy is a good idea.
5) New Loan
Taking out a loan means more debt. If the loan is large enough to cause financial stress to your loved ones if you die, think about modifying your policy. A car loan is a good example of an instance where you may consider reviewing your life insurance. You don’t want this debt passed on to your loved ones.
» Learn more: How to Use Life Insurance to Cover Your Debt
6) Beneficiary Changes
Another instance where you want to think about changing beneficiaries (besides marriage, divorce and dependents) is if your main beneficiary passes away. Many people buy life insurance while they are single and name their parents or even grandparents as beneficiaries. Or, perhaps you named someone a beneficiary because they co-signed a loan for you. Once that loan is paid off you may want to change your beneficiary designation.
7) Health or Lifestyle Changes
Have you been on a new health regime? Eating healthier and working out 30 minutes a day? Congratulations, you may qualify for new life insurance rates and it may benefit you to re-apply. Quitting smoking or lowering your cholesterol or blood pressure are just a few examples of when a health change can affect your rates for the better.
» Learn more: Quitting Smoking and Its Affect on Life Insurance
If your health declines you do not need to worry if you already have life insurance. If you have been paying your premiums and your policy is in force, a negative change in your health will not affect your rates. This is one of the most important reasons why buying life insurance sooner than later is best.
If you changed jobs or hobbies that previously were considered risky, this is another reason to consider reapplying for life insurance. Life insurance companies do require higher premiums from individuals who participate in dangerous hobbies or jobs. The company may be willing to lower your premiums if you can prove these risks no longer apply to you.
If you previously were declined or were required to pay expensive premiums because of a criminal history, this is another situation in which reapplying may be helpful. After enough time has passed since the violation, you may be able to qualify for better life insurance rates.
These aren’t the only events that could cause you to review your policy, but some of the more common ones. By actively reviewing your policy every few years, you can ensure that you have adequate coverage to meet your needs and lifestyle.
If you don’t have life insurance, it’s easy to run term life insurance quotes on Quotacy to see how much it would cost to financially protect your loved ones. We don’t ask personal information until you are ready to commit.
Watch the Life Insurance Policy Review Video
Welcome to Quotacy’s Q&A Friday where we answer your life insurance questions. Quotacy is an online life insurance agency where you can get life insurance on your terms.
I’m Jeanna and I’m Natasha.
Today’s question is:
When should I review my life insurance policy?
We often say in our blog posts that life insurance isn’t just a set-it-and-forget-it purchase. But it’s also not something you’re thinking about on a regular basis so it’s easy to ignore.
After buying a life insurance policy, we recommend that you review it every few years and after every big life event or change. Because as our life changes, our life insurance needs can change as well.
Here are seven common life events in which you should review your policy to ensure you have adequate life insurance coverage and the correct beneficiaries.
Number one: Getting married or divorced.
If you already own a life insurance policy, and then you get married, you may want to review it to make sure it’s enough. Many couples rely on two incomes for day-to-day expenses. If you die unexpectedly, make sure your life insurance can provide funds to ensure your spouse isn’t left struggling financially.
If you’re contemplating a divorce, don’t forget to update your policy beneficiaries if necessary. There have been horror stories of people dying and never removing their ex-spouse as the primary beneficiary. And if you remarry, this is also a good time to review your policy.
Number two: Buying a home.
Review your policy to see if your coverage amount is enough to also pay off a mortgage. Again, paying expenses is manageable with two incomes, but could your spouse afford to pay for the house all alone? Especially if you have children, ensuring they can stay in the home they are familiar with can mean a lot when dealing with the death of a parent.
Number three: Having a baby.
We all know that raising a child is a huge expense and making sure they are financially taken care of is a must. Anytime you welcome a new family member, you want to look at your coverage. And there’s always an option to purchase an additional term life insurance policy that will carry you through your kids’ college years.
Number four: Changing jobs or positions.
If you switched jobs and are at a new company, consider buying more life insurance if you only had a group life insurance policy through your old employer. Group life insurance policies don’t follow you. If your new job doesn’t provide life insurance coverage, you need to look into buying your own policy and we recommend that anyway. Group life insurance usually doesn’t provide much coverage.
If you got a promotion, it may be necessary to re-evaluate your life insurance coverage at this time as well. A big promotion may mean a larger home or sending your children to private school. These things bring the need for more life insurance coverage.
Number five: Taking out a loan.
Perhaps you’re remodeling your bathroom. Or you just bought a new vehicle.
Taking out a loan means more debt. If the loan is large enough to cause financial stress on your loved ones should you die before it’s paid off think about buying more term life insurance. You don’t want this to pass this debt onto your family.
Number six: Your beneficiary dies.
Another instance in which you’d want to change your beneficiaries, other than divorce, is if your primary beneficiary passes away or if the beneficiary is no longer financially dependent on you.
For example, many people buy life insurance while they are single and name their parents or even grandparents as beneficiaries. These individuals are likely to die before you.
Or perhaps you named a beneficiary because they co-signed a loan for you. Once that loan is paid off, you may want to change the beneficiary of that policy.
And number seven: You have significant health changes.
If you have lost weight or have quit smoking since you originally bought your policy, then you may want to look into running new term quotes. Significant health changes like this can affect your pricing for the better.
If your health declines, you don’t need to worry if you already have a life insurance policy. Your policy is locked in and a negative health change will not affect your premiums. This is one of the most important reasons why buying life insurance sooner rather than later is best.
» Compare: Term life insurance quotes
And these aren’t the only events that could cause you to review your policy, but some of the more common ones. By actively reviewing your policy every few years, you can ensure that you have adequate coverage to meet your needs and lifestyle.
If you have any questions about life insurance, make sure to leave us a comment. Otherwise, tune in next week when we talk about why your group life insurance policy may not be enough. Bye!
Photo credit to: Kat Grigg
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