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13 Reasons Why You Should Re-Evaluate Your Life Insurance Policy


Industry experts recommend an annual review of your insurance policies as a best practice to guarantee adequate coverage. Failing to do so may leave you in a situation where you either wish for more coverage or feel frustrated about paying premiums for something that no longer suits your needs.


Unfortunately, neither of those are great options…


Over time, the necessity for Life Insurance can either diminish or, in certain circumstances, intensify. Consequently, you might require additional coverage or find that you no longer need as much as before.

Significant life events often coincide with the need to adjust insurance policies, which is why I’ve compiled a list of events that warrant a life insurance review.

If you haven’t conducted an annual policy review, reconsider your policies if any of the events listed below are applicable to you.


1. Marriage

Items to consider: 

  • Review life policies that are currently in place for both spouses.
  • Is there a need for income replacement?
  • Are there any debts either wish to be paid off with life insurance? 
  • Be transparent with one another regarding your wishes and what you would like to happen upon your passing. Then discuss whether additional proceeds from the policy are needed to accommodate your request(s).

2. New child (birth or adoption)

Items to consider:

  • Income replacement.
  • General childcare expenses.
  • Are there any significant milestones for your children that you’d like to contribute to even if you weren’t here? Events such as milestone birthdays, graduation, tuition, weddings, etc.
  • This is also an excellent time for parents to discuss any interests either may have in purchasing a policy for their child.
Best term life insurance for families

3. Increased or Decreased salary or household income

Items to consider:

  • How has your pay changed?
  • Is the change temporary or permanent? For example, one spouse quits work to be a stay-at-home parent.
  • Have your expenses changed as well?
  • Remember to account for any bonuses, commissions, or profit shares. 

4. New home

Items to consider:

  • Is there a joint owner?
  • Will a financial hardship occur if one owner passes?
  • Do you wish to have proceeds set aside for mortgage payments, or would you, instead, have the mortgage paid off upon your passing?
  • Do you plan on leaving additional funds for property taxes, insurance, and maintenance?
Level term life insurance

5. New debt

Items to consider: 

  • Is there a joint borrower?
    • If so, is the borrower likely to experience financial hardship upon your passing?
  • Do you wish to have this debt paid off upon your passing?
    • If not, do you want proceeds set aside for payments? If so, for how long?

6. New job

Items to consider:

  • Did the new job significantly change your financial situation?
    • If so, how?
  • Did you have to relocate for this job? 
    • If so, were large expenses or debt incurred due to the move?
  • Has your tax situation changed? Think of state taxes that may apply if you’ve moved to a different state or income tax brackets if there was a significant increase or decrease in pay. 

7. Starting or started a business

Items to consider:

  • Who operates the business?
  • Can the company continue upon your passing?
  • Can the business continue upon the death of an employee (key employee)?
  • Where did the proceeds to start the business come from? 
    • Examples: new loan, savings account, retirement account, etc.

8. Adult Dependents (applies to children who have taken on the caretaker role for aging parents or disabled adult children)

Items to consider:

  • Do you have disabled adult children that require lifetime care or support?
  • Are you the primary caretaker for aging parents?
  • What level of care would you like these dependents to have access to upon your passing?

9. Divorce

Items to consider:

  • How has your total household income changed?
  • Were there changes to your debt?
  • Were there significant changes to your savings or retirement accounts?
  • Do you have child support or spousal support payments?
  • How were your dependents affected? Example: You now have daycare expenses due to schedule changes.

10. Empty nesters 

Items to consider:

  • Have the needs for your policy changed?
    • Suppose you purchased the policy to pay off your mortgage and send your kids to school. Since then, your kids have graduated, and your home is paid off. Therefore It’s time to consider if there is still a need for the policy.
Guaranteed life insurance

11. Retirement planning 

Items to consider:

  • What will your financial situation look like during retirement?
    • Examples: Debt, income, taxes, time horizon, etc.

12. New grandchildren 

Items to consider:

  • Do you wish to contribute to their savings or future events?

You wish to have some of the proceeds from your life insurance policy set aside for college or saving.


13. Changes to your health status

Items to consider:

  • Has your health changed for the better or worse?
  • What coverages do you currently have in place?
  • Have your objectives for life insurance changed?

Takeaway

All of the events listed above share one thing in common: They can create a need for more insurance or eliminate the need for it.

Unfortunately, this can expose some shoppers or policyholders to negative sales experiences. Such as being sold another policy they don’t need, pitched a replacement policy that’s inefficient to their objectives, or need more coverage.

Policy Objectives

Therefore, by keeping sight of their policy objective and being aware of how these changes affected their insurance needs will help you avoid such scenarios. 

Current policy owners can find these policy details within their contract, should you need a refresher on your existing policy. If you can’t find the original contract, you can call your Life Insurance company to request a copy. 

As for Life Insurance Shoppers, you’ll be able to find product details in the illustration provided by the selling agent or broker.

Illustrations can be difficult to dissect and translate I plan on posting a tutorial on how to review illustrations, fine print to look for, and a worksheet that you can use to lay out policy details in a format that is easier to digest. 

*Hint: “Illustration” is a life insurance term for the product presentation. Illustrations will reference the policy’s mechanics and the policy’s potential performance.

Performance forecasts consist of assumptions during specific time periods.


In the meantime, let me know what your experience has been with life insurance in the comments. As always, feel free to message or comment with any questions regarding life insurance illustrations!


Disclaimer: The opinions expressed in this blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security, investment, or insurance product. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice.


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