UPDATED: Feb 25, 2020
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Reviewing your life insurance needs is probably not very high on your to-do list if it’s on your list at all. If so, chances are good it’s way down at the bottom, somewhere between cleaning out the rain gutters and flossing the cat’s teeth. And there are countless excuses you can come up with to put it off for another day… Or year.
The good news is you’re not alone. A recent study by the National Association of Insurance Commissioners (NAIC) shows over 60 percent of life insurance owners have no idea what type of life insurance they have or how their policy works. And 29 percent of those surveyed said they need more life insurance but haven’t gotten around to getting it yet. Yikes.
It’s a good practice to review your life insurance needs every two years, or when you have a major life or career event. Reviewing your coverage doesn’t always mean you need to purchase more life insurance. Sometimes policy changes are as simple as completing a form or two. Here are three perfect times to take a look at yours.
1. New Job or Change in Income
Getting promoted, changing jobs or losing a job can all impact your income. The coverage amount on your life insurance policy was probably determined using your income at the time you took out the policy. That number can be significantly different today than it was back then. If it is, now is a good time to reevaluate.
Do you earn more or less today? Has your cost of living increased as a result? Did you lose your life insurance coverage when you were laid off? Will your current policy provide enough to cover expenses for your family? You may be surprised by the answers when you sit down for a review. You may find you need additional coverage. Or you may have just the right amount. Or better still, you may have eliminated some obligations and can now reduce your life insurance coverage amount and save some money!
2. Recently Married or Divorced
Marriage and divorce are both major life-altering events. Both will have an impact on your life insurance policy. If this is a second or third marriage and there are children involved, you may find your coverage needs have changed. Most likely you will need to change or add beneficiaries to your policy.
A divorce could also mean you now have additional obligations for life insurance coverage. It is quite common for divorced parents to be required by court order to provide life insurance coverage for their children. Once again, you may need to change your beneficiaries as a result of the split.
3. A New Bundle of Joy
Children are the driving force behind most life insurance policies. Family protection and income replacement are the top two reasons people buy life insurance. If this is your first child, chances are good you don’t even have a life insurance policy yet. Either way, you’ll want to review your needs each time you have a new child to ensure you have adequate coverage. You may need more life insurance if you wish to cover college expenses for each of your children or you plan to upgrade the size of your home to accommodate your growing family. At the very least, you will want to revisit your beneficiary designations and makes changes where appropriate.
Perhaps your older bundle of joy recently graduated college or got married? This may be another good opportunity to reduce your life insurance coverage amount and cut your premium.
We’ll admit, life insurance reviews sound about as fun as walking on a bed of hot coals. But we promise it’s not quite as painful!