When and Why Should I Review My Life Insurance Policy?
Insurance policies may seem like a relatively straightforward one-time decision. In exchange for regular payments, policyholders have the right to a lump sum when they pass away. These funds can be used to help cover final costs and ensure any dependents are taken care of financially. Of course, the basic idea is made more complicated by the many different types of policies available and the various coverage options they include.
In this article, we’ll take a look at when individuals may want to consider reviewing their life insurance policies and what to look for when doing so.
Life insurance needs often fluctuate over time as an individual’s situation changes. For example, a single young adult may not require any life insurance at all, while a married father of four may require a large life insurance policy to provide for his family if he unexpectedly passes away. There are many important life events where it may become necessary to explore purchasing life insurance or potentially change the terms of existing life insurance
Here are some common times to review:
Getting Married – If your spouse depends on your income, you may want to explore getting life insurance to help meet expenses and pay off debts. The coverage amount depends on the couple’s income, debt loads, and other financial aspects.Having Children – Children are often the greatest consideration when it comes to life insurance. After having children, life insurance can help your family meet both current and future expenses if you were to pass away prematurely.Aging Children – Life insurance may be unnecessary after your children have left the house, but before canceling a policy, it’s important to consider the spouse’s needs and whether or not life insurance plays a role in estate planning.Retirement – Some retirees may also be able to eliminate their life insurance policies, if they’ve paid down debt and have reliable income, but others may need to consider adjusting their policies to take out cash to meet expenses.
How to Evaluate
Life insurance products can be deceptively complicated, especially when it comes to choosing the right riders and planning for taxes. For example, some policies may not pay out in the case of an accidental death, which can be problematic in some professions. An accidental death benefit rider provides additional life insurance coverage if the policyholder dies as the result of an accident rather than just by disease or old age.
Some important issues to review include:
Beneficiaries – Are the beneficiaries listed on your policy still valid? A divorce or other life event may warrant revisiting these beneficiaries or reallocating funds.Premiums – Are premiums fixed or set to increase over time? If policies are set to increase, does the added cost still fit into your household budget?
Cash Value – Is the cash value of the policy where you expect it to be? In some cases, sales literature may be too ambitious in projections (e.g. IUL policies).
Often times, it’s best to meet with an insurance agent once per year to review your policy and ensure that everything is in order. Additional visits may be necessary after important life events occur that warrant a change in beneficiaries or policy term