You finally took the plunge and bought life insurance for the first time last year. Or was it the year before? Either way, congratulations on taking this big step toward helping to protect your loved ones from the financial adversity which could affect them as the result of your death. Now that you’ve checked that item off your to-do list, you can relax, pat yourself on the back, and forget about it forever, right?
Not a good idea.
Why you bought life insurance in the first place.
When you bought your life insurance policy(ies), you entered into a contract with the insurance company to pay the premiums according to the terms of your policy. In return, the insurance company agreed that upon your death, they will pay the amount you chose as the death benefit (if payable according to the terms of the policy) to the person you designated as your beneficiary.
Life insurance is designed to help address the four basic needs most families may face upon the death of an income earner:
Final Expenses -This term refers broadly to the funeral, and cremation and/or burial. Depending on the benefit amount you chose, it may also help pay any lingering medical expenses or other debts you may have incurred.
Income Replacement -When the dust settles after the funeral, life must go on for the rest of the family, who now have to make their way not only without your presence, but without your income. All the bills you used to pay may now fall on your loved ones: utilities, vehicle maintenance and repair, home insurance, car insurance, medical and dental bills, the kids’ sports activities, school trips — all the little things that make up family life.
Mortgage -The mortgage is typically the largest expense a family has … and it’s one that will usually be around for a long time. How much is left on your mortgage — 15, 20, 25 years? A family should not have to face the possibility of losing their home and their lifestyle, and having to uproot the children from their routine, when they’re navigating the grieving process.
Education -It’s natural for us as parents to want to give our children the best education we can afford to prepare them for success in their adult lives. Having money put aside for this purpose helps ensure your child doesn’t have to settle for less in life because a quality education was out of their reach.
This is all taken care of! What’s the deal?
Change is the only constant in life, and just like your family grew from a compact car to a minivan, and out of a two-bedroom apartment into a four-bedroom home, your life insurance coverage may no longer fit your current and ever-evolving needs.
Conventional wisdom says we should review our insurance needs at least once a year as a regular financial practice.1 Life events, big and small, may signal the need to make changes in your coverage that will help make sure your family is covered in their current circumstances and for the foreseeable future.
Some life changes/events that could affect your life insurance coverage needs include:
Your birthday -The passing of time alone can trigger a change in your insurance coverage. Depending on the type of insurance policy(ies) you have, your premiums may go up each year.
Marriage -“I do” typically means changing your beneficiary and considering coverage for your spouse as well.
Birth or adoption of a child or grandchild -The arrival of a child into your family means an additional person who depends on your income. Often, grandparents will purchase life insurance policies on grandchildren. Coverage at that age is inexpensive and may provide proof of insurability in the future.
Buying a home -Beef up your life insurance coverage to help ensure your loved ones could remain in their home, in the event of your death.
Promotion at work -A promotion (hopefully) means a bump in your paycheck. You may want to raise the benefit amount on one or more of your life insurance policies.
Divorce -You would likely want to change your beneficiary.
Taking on financial responsibility for aging parents -The tables are turned and now they’re depending on you. If you are suddenly not there to help provide, could your loved ones afford to continue caring for your parents?
Death of a family member -Report the loss to your insurance agent so you don’t continue paying premiums for that person. If we’re talking about your spouse, you may want to increase coverage on yourself to help ensure that if something happens to you, the children can continue living the lifestyle you have worked so hard to provide.
Planning retirement -Retirement is a whole new ballgame, and your insurance needs will likely be different. Don’t cancel life insurance you purchased pre-retirement until you meet with your financial advisor or retirement planner to discuss your plans and goals.
The only constant is change. Help ensure your life insurance coverage keeps pace with the changes in life. Schedule a review with your licensed insurance agent.
- Insurance Information Institute, How often should I review my policy? (August 19, 2020)
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