ISAKOV Planning Group Blog
Thursday, May 21 2020
Owning life insurance gives you the peace of mind knowing that your family will be financially protected if something happened to you. But your policy isn’t a set it and forget it product and it’s important to give your life insurance policy a review once in a while. It’s not something you are thinking about on a regular basis, so it can be easy to forget. Out of sight, out of mind, right?
It’s important to perform life insurance policy reviews because as your life changes, your insurance needs may change as well. Life insurance policies should be reviewed every few years and especially after any major life changing events.
1) Marriage or Divorce
Getting married soon? Now that your family is growing and you will be sharing finances with another person, your life insurance needs may change. Many couples rely on two incomes to pay day-to-day expenses. If you died unexpectedly, your spouse would quickly feel financial struggle in addition to the emotional and physical devastation from losing you. Term life insurance will provide income replacement in the event of your spouse’s death.
Tip: Use the individual’s legal name, as in “Elizabeth Marie Bennett,” rather than “wife.” In case of a second marriage, “wife” could be interpreted either as your wife when you bought the policy or your current wife.
Are you contemplating a divorce? There are a number of financial issues to think about and life insurance should be on this list. Update your beneficiaries if necessary. There have been horror stories of people dying and never removing their ex-spouse as the primary beneficiary. If you remarry, this is also a time to review your policy.
2) Home Purchase
Did you and your partner decide to buy a new home together? Review your policy to see if your coverage amount is enough to also pay off a mortgage. Again, paying expenses is manageable with two incomes, but could your partner afford to pay for the house all alone? Especially if you have children, ensuring they can stay in the home they are familiar with can mean a lot when dealing with the death of a parent.
Maybe you’re purchasing a second home; a vacation home in Florida, for example. With all the excitement going on, don’t forget to review your life insurance. Any time your housing status changes, it’s time to review.
3) Child or Dependent
We all know that raising a child is a huge expense and making sure they are financially taken care of is a must. Anytime you add a child to your family, you want to look at your coverage. There’s always an option of purchasing an additional term life insurance policy that will carry you through your kids’ college years.
If you buy a new life insurance policy, consider adding a child rider. A child rider is an “add on” you can purchase with an individual life insurance policy that not only covers the life of your children, but it can be converted into a permanent policy later on in life without the child being required to show evidence of insurability.
Tip: If you want your minor children to receive your life insurance proceeds, you need to designate a trust as the beneficiary or name a trusted adult who will make proper decisions about the care and welfare of your children. Life insurance companies will not pay death benefit proceeds directly to minors. As your children mature, make beneficiary changes as necessary.
4) Employment Change
Did you get a promotion? Along with a big promotion, maybe you decided to get a nicer car or bigger home. Maybe this means you are now sending your children to the best private school money can buy. Do you need more life insurance coverage?
Maybe you got a new job at a different company. Did you have a group life insurance plan with your old job? What benefits does your new job offer? If life insurance isn’t one of them, you need to re-evaluate your life insurance situation.
If your new job does offer group life insurance options, find out if it’s portable—in other words, if you can bring the coverage with you if you left the company. In any case, most group life insurance policies don’t provide enough coverage that individuals with families need and owning a separate life insurance policy is a good idea.
5) New Loan
Taking out a loan means more debt. If the loan is large enough to cause financial stress to your loved ones if you die, think about modifying your policy. A car loan is a good example of an instance where you may consider reviewing your life insurance. You don’t want this debt passed on to your loved ones.
6) Beneficiary Changes
Another instance where you want to think about changing beneficiaries (besides marriage, divorce and dependents) is if your main beneficiary passes away. Many people buy life insurance while they are single and name their parents or even grandparents as beneficiaries. Or, perhaps you named someone a beneficiary because they co-signed a loan for you. Once that loan is paid off you may want to change your beneficiary designation.
7) Health or Lifestyle Changes
Have you been on a new health regime? Eating healthier and working out 30 minutes a day? Congratulations, you may qualify for new life insurance rates and it may benefit you to re-apply. Quitting smoking or lowering your cholesterol or blood pressure are just a few examples of when a health change can affect your rates for the better.
If your health declines you do not need to worry if you already have life insurance. If you have been paying your premiums and your policy is in force, a negative change in your health will not affect your rates. This is one of the most important reasons why buying life insurance sooner than later is best.
If you changed jobs or hobbies that previously were considered risky, this is another reason to consider reapplying for life insurance. Life insurance companies do require higher premiums from individuals who participate in dangerous hobbies or jobs. The company may be willing to lower your premiums if you can prove these risks no longer apply to you.
If you previously were declined or were required to pay expensive premiums because of a criminal history, this is another situation in which reapplying may be helpful. After enough time has passed since the violation, you may be able to qualify for better life insurance rates.
These aren’t the only events that could cause you to review your policy, but some of the more common ones. By actively reviewing your policy every few years, you can ensure that you have adequate coverage to meet your needs and lifestyle.
If you currently don't have any life coverage or have any additional questions about it, please don't hesitate to contact us.