When was the last time you took a look at your life insurance policy? Too often, the answer to that question is “Never.” Many people either don’t know that their life insurance coverage should be reviewed on a regular basis, or they simply put off the task altogether.
The truth is, it’s important to review your coverage regularly. For instance, taking steps to improve your health could result in paying less for coverage. If you lose weight or stop smoking, it’s possible to be assigned a better rating, which translates to lower insurance premiums.
And while regular life insurance reviews are great, there are times when you may need to review your coverage with more immediacy. For example, if a significant life event occurs, you’ll want to make sure you have all your ducks in a row and are totally covered.
If you experience one of the following three life changes, it’s recommended that you review your coverage right away.
1. Marriage or Divorce
If you’re currently single, a major life event like marriage will certainly trigger a reevaluation of your financial plan, including your life insurance policy. If you have a personal life insurance policy, you will likely want to make your new spouse the beneficiary. If you are currently uninsured, think about purchasing a policy with your spouse as the beneficiary.
Conversely, a divorce should also trigger a reevaluation of your insurance. If your ex-spouse is the beneficiary on a life insurance policy, consider whether you still want that person named. Remember: Your beneficiary designations will supersede what’s written in your will, so it’s critical that you make sure they’re up to date and accurate.
2. Birth of a Child
If there’s a new baby in your family, your living expenses will increase. If you purchased your life insurance policy to provide income in the event that you suddenly pass away, you may want to investigate whether you should increase the death benefit of the policy. If this is your first child and either you or your spouse will be staying home with the child, it’s generally a good idea to purchase life insurance for the stay-at-home parent, as well. Recent estimates have found the effective “salary” of a stay-at-home parent to be nearly $180,000!
Additionally, if you’re becoming a grandparent, the birth of a child in your family might also cause you to reevaluate your life insurance situation. While any sort of death benefit will likely go to your spouse, a life insurance policy can be placed inside a trust—called an irrevocable life insurance trust (ILIT)—and may help you reduce your estate tax liability. Doing something like this could help you gift more to your new grandchild when you pass.
3. Becoming a Caregiver
If you’ve assumed the role of caregiver for an ailing loved one, you know that it’s both a time-consuming and financially demanding role. Not only is your spouse and children reliant on your income, but the person you’re caring for may depend on you financially, too. Take a look to see whether the person being cared for should be named as a beneficiary or if you need to increase the amount of death benefits on your policy.
An insurance review should go beyond just evaluating your life insurance—all your policies should be reviewed to ensure that your family and your property are protected in the event that the unexpected occurs. Working with an insurance specialist or a financial advisor can help address any questions you may have and ensure your coverage is still right for you.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial, tax, or legal advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice, you should consult an insurance professional. You may also visit your state’s insurance department for more information.
CFP®, MBA, Series 7 Securities Registration,1 Series 66 Advisory Registration, † Life & Health Insurance License As a CERTIFIED FINANCIAL PLANNER™ professional, Jim brings an extensive retirement income planning background to the team. He regularly writes a personal finance column for The Des Moines Register’s Business...Read More