Life is full of changes, and securing protection is a top priority as you navigate each stage. Life insurance is one such protection. It offers you and your loved ones peace of mind and financial security. But here’s the catch: life insurance policies aren’t meant to be set in stone. As your circumstances change, so should your coverage. It’s an ebb-and-flow process contingent on regular reviews and updates.
This article will dive into why life insurance policy reviews are necessary, when and how to do it, and options for changes.
Key Reasons to Review and Update Your Life Policy
Life insurance is a worthwhile investment for individuals who want to secure their assets and the financial future of their loved ones after their passing. But simply having a policy is not enough. Life is unpredictable, and as our circumstances change, so do our insurance needs. Periodic policy revisions ensure your life insurance policy continuously meets your evolving needs.
Here are some ideal times to review and update your life insurance policy details.
Changes in Life Circumstances
- Change in marital status: If you get married, you should increase your current life insurance coverage to provide for your spouse if you pass away unexpectedly. Similarly, you may need to adjust your policy to modify your beneficiary details if you divorce.
- Birth or adoption of a child: Having a child is one of the common reasons policyholders often review their life insurance coverage. You may need to increase your coverage to ensure your child receives sufficient financial aid in the event of your death.
- Home purchase or relocation: Buying a new home is a major life milestone with new financial obligations attached, such as a mortgage. Depending on your current coverage, you may require policy adjustments for adequate life insurance coverage to help your family pay off the debt after your passing.
- Career change or promotion: Changes in your employment will impact how much coverage you can afford for better or for worse. If you receive a promotion or significant pay raise, consider increasing your policy limits to reflect your new financial situation. Likewise, moving to a job with a lower income may require adjustments to meet your decreased monthly budget comfortably.
- Death of a beneficiary: If your current beneficiary passes before you do, update your policy details immediately to avoid misunderstandings with your life insurance benefit.
Changes in Financial Circumstances
- Increase standard of living: The more money we have, the more we spend. So if your standard of living increases, you may take on additional financial obligations. Since life insurance offers more than death benefits, this is an excellent time to consider estate planning and how insurance can help you build your family’s wealth.
- Increase or decrease in debt: Changes in your debt load will also impact your life insurance needs. If you take on additional debt, you may need to increase your coverage to ensure the burden of repayments doesn’t fall on your loved ones if you pass away unexpectedly.
- Investment gains or losses: If you experience significant gains or losses, evaluate your policy and revise where necessary to align it with your shifting financial goals.
Changes in the Insurance Landscape
- New products or coverage options: The insurance landscape evolves, and insurers regularly introduce new products and coverage options to remain competitive. Review your provider’s or their competitors’ offerings and compare your current policy to see where to take advantage of the latest offerings.
- Changes in insurance regulations: Insurance regulations will impact your coverage. Stay up-to-date on any changes in laws that might affect your policy.
Closing the purchase of a home, marriage, and welcoming a child into the family are the top reasons for buying life insurance. These motivators highlight the dominant goal of life insurance: to keep loved ones safe from financial worries.
— The Drivers of Life Insurance Purchase Behavior: Predicting Who Will Buy (2018), LIMRA
Updating Your Life Insurance Policy: What to Include in Your Annual Life Insurance Review
Several options are available for policy updates, depending on your needs and circumstances.
Options for Life Insurance Updates
Renew or Extend Your Policy
First, you can choose to renew or extend your policy. This option is for policyholders with term life insurance policies offering coverage for a specific period (usually 10, 20, or 30 years). If your policy’s renewal is coming up, you can extend it for another term, usually at a higher premium rate. Another option is to convert your term policy to a permanent life insurance policy.
Permanent policies, like whole or universal insurance, offer coverage for your entire lifetime and also accumulate cash value over time. Converting your policy is an excellent option if you want long-term coverage while building up cash value for savings and retirement.
Finally, you can choose to purchase a new policy altogether. A brand-new policy is only necessary if you can’t buy additional coverage with riders or want to switch your insurance provider.
Adjusting Coverage Amounts
Another way to update your policy is by revising the coverage amounts. Adjusting your limit may be necessary if your financial responsibilities have changed significantly and you need more or less coverage.
For example, if you’ve paid off your mortgage or your children are grown and financially independent, you may not need as much coverage as when you first purchased your policy.
Conversely, if you’ve had another child, purchased a larger home, or experienced a significant increase in income, you may need to increase your coverage to safeguard your loved ones and assets.
Adding Riders
Riders provide additional coverage at a fraction of the cost of buying another policy for supplemental coverage. Riders are optional policy features that extend your benefits under specified conditions. They are the easiest, most cost-effective ways to customize your policy.
Some standard riders include:
- Accidental Death Benefit: Provides an additional payout if you die due to an accident.
- Waiver of Premium: Waives your premium payments if you become disabled and unable to work.
- Long-Term Care Rider: Provides coverage for long-term expenses like at-home health care or a nursing home.
Speak with your insurance agent about riders you can add for bolstered protections.
How to Review and Update a Life Insurance Policy
How often you review your life insurance policy depends on when the life changes happen. But, as a rule of thumb, review your policy at least once a year.
Here are some tips for tackling the process.
Gather information about your current policy.
The first step in reviewing and updating your life insurance policy is gathering all the relevant information about your current policy: policy documents and premium statements. These records should already be together in a safe place for quick and easy access in an emergency.
Review your documents to remind yourself about the policy type and amount of coverage you presently have. Note whatever changes you want to make or any questions you have after completing the initial review of your policy.
Evaluate your coverage limits.
Once you’ve reviewed your policy wording and benefits, assess your coverage and compare it with your present life stage. To do this, ask yourself these questions:
1 | Does your coverage adequately reflect your current needs?
Assess the significant changes in your life since your purchased your policy. Consider the current number of dependents you have, their ages, and your outstanding debts. How well would your current death benefit protect them if something happened to you?
Underinsurance can put your family at significant financial risk, setting them back years.
2 | Are you comfortably able to pay your current premiums?
Missing payments incur late fees, leaving red marks on your insurance and credit history. These red marks have several implications:
- They will affect your credit score and, by extension, your creditworthiness. If you ever want to apply for a new policy, your next insurer will see missed or late payments as a liability they don’t want to accept.
- Continuous late payments may cause you to lose coverage and the money you’ve already invested, as there are no refunds.
- Late fees will increase your monthly premiums, making it even harder for you to pay.
If your premium is unaffordable, consider reducing your coverage amount or switching to a different policy. Address this concern with your insurer before it becomes a problem. They can offer solutions to help you retain your coverage.
3 | How would you benefit from additional coverage?
If you can afford the increased premium, look into extra coverage options, such as disability or critical illness, to protect yourself and your loved ones better.
Read our post about life insurance riders for more ideas.
Research new policy options.
Once you’ve evaluated your current coverage, it’s time to research new policy options. To do this, you should:
1 | Decide on your coverage need.
During your evaluation, you would have pinpointed any gaps in your coverage. Use your assessment to estimate the amount and type of coverage you require. It’s best to approach your agent with some ideas of what you want. From there, they can offer personalized recommendations for policy types and limits.
2 | Research policies and life insurance providers.
Research the present offerings of your insurer and their competitors. Compare policy features such as coverage amounts, exclusions, and riders. Check out the costs of each policy, including premiums and fees.
Approach providers with a good reputation and a track record of paying claims promptly. The company you work with impacts the quality and security of your policy.
Learn more about insurance company ratings in this post.
Consult with an insurance professional.
Once you’ve completed evaluating your insurance needs and understanding the options available, speak with an agent or broker. They’ll assist with your policy review and recommend the best course of action you need to take next.
During this process, you’ll want to:
1 | Discuss policy options and recommendations: Talk to your current insurance agent or broker about your revised coverage needs. The more details you can provide, the more tailored their advice will be.
2 | Review policy language and exclusions: Review the language and exclusions in any policy you are considering to ensure it meets your needs. The tricky parts of any policy are the terminologies and the special conditions in the fine print.
Look for asterisks and subscripts or superscripts (numbers or letters offset slightly below or above the regular line of text in smaller font sizes) as these indicate references to a clause, definition, or condition mentioned somewhere on the page or in the document.
3 | Obtain a quote for new or additional coverage.
Ask your insurance professional to provide you with a quote for any new or additional coverage you are considering. You can apply to multiple companies during the decision process.
These companies will conduct a soft credit check to draft an estimate of your monthly premiums and benefits. Although you’ll see them recorded, these soft inquiries won’t affect your credit report.
The quote you receive is not the final calculation. The final amounts will differ once the company conducts a hard credit check to dive deep into your credit history after you submit an official application for coverage.
Bonus Tips for a Successful Insurance Review
Here are some bonus tips for a successful review:
Schedule regular policy reviews.
Schedule regular policy reviews to ensure your coverage continues to work for you. Mark it on your calendar so it remains one of your top annual priorities. Investing in a life insurance policy is only worthwhile if it meets your changing needs.
Consider your long-term needs.
When reviewing your policy, consider your long-term needs. Evaluate your retirement plans, children’s education needs, and other expenses. Consider purchasing a policy with a savings component to help you accumulate cash value over time.
Think—How can I maximize my policy benefits by building wealth for my family?
Conclusion
Life is unpredictable, and your coverage needs will change with significant life events. Review your current policy and determine if it’s still the right fit for you and your lifestyle. Update your policy limits and consider riders for added protection.
Protecting your family’s financial future is too important to leave to chance. Take action today to ensure you have the necessary protection for yourself and your loved ones. Contact an insurance professional to assist you with the process, answer any questions, and help you choose the best policy for your unique situation.
