Studies show that most Americans are underinsured. On the same token, I have one client who bought a policy 17 years ago that is going to run out in three years. Could you have an expired policy, thus no coverage at all?
Life situations change all the time. When you purchased your last policy, you may very well have been in a much different situation than today. You likely purchased coverage that met your needs at the time, but those needs, much like your life situations, change. It is critical for your future—and the future of your family—to review your life insurance policy and ensure your coverage is adequate.
When to Update Your Life Insurance Policy
There are a number of situations that could warrant an upgrade (or downgrade) in your life insurance policy. Three of the more prevalent situations are highlighted here:
- Change in Marital Status: Getting married or remarried may have a significant impact on your financial obligations. Even without children, life insurance coverage can provide financial peace of mind for your spouse, particularly if you own a home or are planning a comfortable retirement. On the other hand, if you get divorced, evaluating your financial needs is critical. If you do not have children, you may not need a lot of coverage; if you do have children, you may consider increasing your coverage. In any of these cases—marriage, remarriage or divorce—make sure your beneficiary is correct.
- Sudden Wealth: If you recently got a new job or promotion that resulted in a significant raise, or if you just fell into more money, you should consider increasing your life insurance coverage. Let’s say you were recently promoted to a C-level position, doubling your previous salary. Would your family still live off of the previous salary, or would you adjust your lifestyle? Even if you only adjusted your lifestyle somewhat, you should think about the lifestyle your family would have in the event of your death. Adjusting your life insurance coverage to correspond with your new salary would allow your family to live comfortably.
- Change in Family Structure: Becoming empty-nesters doesn’t just mean more space in the house—it may also mean you don’t need your current levels of coverage. When your children grow up and move out of the house, consider whether or not your spouse would need the additional funds to care for your children. Similarly, if your spouse dies and he or she was the beneficiary, consider whether or not you should lower your coverage amount. If you still have young children, you may want to increase your coverage; if you have grown or no children, you may decide you should change your coverage to a paid-up status. In any event, be sure to change your beneficiary immediately.
Determining how much life insurance coverage is appropriate for you and your family can make or break your future. If you find yourself in any of the situations above, talk to a life insurance expert about whether or not you should decrease or increase your coverage levels.
Read More: Life insurance plays an important role in the completion of a financial plan. Learn more about life insurance reviews and why they are critical for families in our blog post, Why Do a Life Insurance Review?