If you purchased your life insurance policy some time ago, it’s likely you haven’t thought about it much since then. Maybe your life has changed in significant ways and you’re wondering whether it’s time to adjust your coverage. Here’s when it may be time to reevaluate your life insurance portfolio and potentially update your beneficiary designation:
Your Family Has Grown
If you’ve gotten married, you should make sure both you and your spouse are adequately covered. Also, if you have children, it’s important to evaluate how much more coverage you’ll need to protect your entire family should the unexpected occur. You've increased your number of financial dependents, and your coverage should reflect that.
Also, if you’ve started caring for an older parent, you want to make sure your life insurance policy will cover all dependents that rely on your income if you’re no longer able to provide for them. A financial needs analysis can help determine the appropriate coverage amount.
Your Career and Income Have Changed
Maybe you’ve changed jobs or made a total career transition into a new field. Perhaps you’ve moved up the ranks in your company, earning a promotion that resulted in a salary increase, potentially leading to lifestyle inflation.
Experts recommend a coverage amount equal to seven years of your salary. If your salary has grown since you purchased your life insurance policy, it may be time to increase your coverage to be sure it protects your loved ones in their time of need. You may also want to explore supplemental life insurance options through your employer.
You Have New Financial Obligations
Have you bought a house, started a business or taken on some other major, long-term financial obligation? The more financial responsibilities you accept, the more life insurance coverage you may want to consider. It is also important to consider a policy that may cover all of your financial commitments, so your loved ones don’t inherit unexpected costs they may not be able to cover on their own.
This is especially important if you’ve co-signed on debt, have joint debt, have business partners with whom you share financial obligations or have employees who count on your business for their livelihood. Consider key person insurance to protect your business from the financial impact of a key employee's death.
You may want to discuss with business partners whether your firm has the right types of life insurance in sufficient amounts to protect each other and the business if one of you passes away. Having life insurance in place can be a crucial part of business succession planning and can protect your family from business creditors, too.
Your life insurance coverage should be adjusted as the circumstances of your life change. Significant changes in income, expenses, and family size are all important variables to consider. It is important to take some time to evaluate whether you should adjust any existing life insurance policies you have, or if you should purchase additional coverage to help meet your financial needs and address any potential coverage gaps. Review available policy riders, such as a conversion option or a waiver of premium rider, to customize your coverage. Keep in mind that factors like age, health, and lifestyle can affect underwriting and premium rates.
Estate planning often goes hand-in-hand with life insurance, as the death benefit can provide liquidity for your heirs to cover expenses like taxes.