Life insurance isn’t something you buy once and forget about until you need it. Like most insurance policies, doing an annual review of your life insurance is a good idea.
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This ensures you have the coverage you need and aren’t paying more than necessary.
If you have term life insurance, you can determine if the term covers any long-term expenses your family would have to handle if you died prematurely. However, if you have whole life insurance, you want to check on it to ensure it meets your financial goals.
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Reasons to Check your Life Insurance Annually
You might think checking your life insurance every year is overkill, but here are the top reasons to consider it:
- Your beneficiaries changed – Life happens, and sometimes you need to change beneficiaries, but it’s not something you think about daily. An annual life insurance review can remind you of the necessary changes.
- You added to your family – If you had a child, you might want to increase your coverage. For example, now you have a child that might go to college. Do you want enough insurance coverage to cover the costs in case you die prematurely?
- You got divorced – If you got divorced, you might have to change your life insurance. You’ll likely change the beneficiaries, but you may need less coverage, too, since you don’t have a spouse to protect any longer.
- Your debt increased – Life insurance proceeds can help loved ones pay off debt, including a mortgage. If you bought a new house, refinanced your mortgage, or took on any other consumer debt, you may need more life insurance coverage to handle it.
- You’re an empty nester – If your kids moved out and it’s just you and your husband now, you might not need as much coverage. Review your policy and make changes as necessary. They’ll likely still be your beneficiaries, but you may not need to pay for as much coverage.
- You started a higher-paying job – Your life insurance should cover the lost income loved ones experience when you die. If you recently took on a higher position, you might need to increase your life insurance coverage to account for the higher lifestyle.
Other Reasons to Check Life Insurance
The reasons above are why you should check your life insurance annually, but if any of these events occur in the meantime, consider reevaluating your life insurance sooner.
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- You started a business – If you’ve gone out on your own and started a business, a lot is riding on your shoulders. You likely depleted your savings to start the business, which means your loved ones may not have money left to survive. Increasing your insurance policy can give your loved ones the funds they need to handle your affairs.
- You retired – When you retire, you may want protection should you outlive your retirement savings. In retirement, you may want to decrease your benefits because you no longer have as many dependents. You may also consider converting coverage to a permanent policy, so you have a cash balance to rely on if you need to supplement your income.
- You care for your elderly parents – If you’ve suddenly taken on the responsibility of caring for your elderly parents, you may want the life insurance coverage to protect them should you pass away before they do.
- You received a windfall – If you received a sudden inheritance or sold your business and have a much larger net worth, you might consider decreasing your life insurance coverage. You can lower your coverage and costs if you don’t need to leave behind as much money for your loved ones.
What to Consider When Reviewing your Life Insurance
Here’s what you should consider whether you review your life insurance annually or only when life circumstances change.
- How much coverage do you need? Look at your current coverage and determine if it covers what you need. For example, did you start a new job, change your lifestyle, buy a house, or have a child? Any life-altering events will likely affect your life insurance coverage. In most cases, you may want to increase your coverage, but only a life insurance review will determine if you’re still on track.
- Are your beneficiaries the same? Always review your beneficiaries. You may have someone named that you forgot you named, and now they aren’t in your life. You can’t change beneficiaries after you’re gone, so reviewing this annually is important. You may also need to add beneficiaries, such as if you had a child or remarried and want to add more family members to your policy.
- Premium affordability. Something you should always review is premium affordability. If you took out a policy when your income was higher, but the premiums are harder to afford now, you might want to reassess your policy and decrease the premiums.
Consider reviewing your life insurance annually and after any life events. People change their life insurance more often than you think, and a quick conversation with your life insurance agent will help you understand your options.