Your life insurance policy isn’t something to just purchase and forget. It’s a good habit to review it every couple of years, and also whenever you experience a life-changing event. Here are some major life events that are good times to review a life insurance policy.
The act of taking your vows or dissolving them means a significant life change. If you’re getting married, you could be sharing finances. If you pool your money together and start sharing accounts, it’s good to make sure your policy adequately covers your husband or wife, should you pass away. Here are some important insurance actions to consider:
Update your beneficiaries
A beneficiary is the person, business, or trust that receives the death benefit proceeds from your life insurance coverage when you’re gone. It’s likely that the person you’ll want to be listed as your beneficiary, depending on your life insurance policy, is your spouse. If you have life insurance coverage through work, remember to update your beneficiary on that policy as well.
Update your retirement accounts
Retirement accounts like IRAs and Roth IRAs, workplace retirement plans such as your Pension, 401(k) or 403(b), and FSA and HSA Flexible spending accounts allow you to designate a beneficiary who will inherit the account should you die.
If you’ve gone through a recent divorce or are in the process of divorcing, you might want to review your life insurance policy. This may be particularly important if you’ve listed your ex-spouse as a beneficiary on your policy and you would like to remove him or her.
Even if there are no directions in the divorce decree considering your life insurance policy, it might be good to review your beneficiary. If you don’t remove your former spouse, he or she will receive the death benefit when you pass away. This may not be the outcome you intended. Contact your life insurance carrier for instructions on how to change your beneficiary.
3. After a home purchase
If you’re planning to purchase a home and take out a mortgage you may want to take a look at your life insurance policy. Buying a home may be one of your biggest financial obligations. A life insurance policy can be smart financial protection for homeowners. A mortgage can be a substantial debt, and many mortgage lenders will want to ensure it gets paid even if you pass. If you die before paying off the mortgage, the debt will pass on to your family, and your spouse may not be able to afford to pay for the house on one income. With all of these factors to consider, it may be time to make an update or change to your life insurance policy. Options include:
Term life insurance
Term life insurance pays a death benefit if you die while the policy is in effect. You choose the coverage amount and how many years the policy should last. Most life insurance companies sell term life. New homeowners can buy a term life insurance policy timed to match the duration of their mortgage.
Mortgage life insurance
An alternative to level term life insurance is term mortgage life insurance, which is specifically used for paying off your mortgage balance if you die. It pays the exact amount of the mortgage balance, and the payout goes directly to the lender.
Permanent life insurance
A permanent life insurance policy can last until you die if premium requirements are met. It can also build cash value over time and is generally is more expensive than term life insurance.
Talk to a financial professional about how buying a home could affect your life insurance needs.
4. Having a child or more dependents
A new bundle of joy in the home may mean it is time to review your life insurance policy.
Life insurance can help cover many expenses that your spouse may incur for a child if you pass away, from daycare to college.
Term life insurance is an option for many families because of its lower cost compared to permanent life insurance. When buying life insurance, consider the years you’re raising your children, building savings, and paying off debts. Both parents usually need life insurance. If you or your spouse is a stay-at-home parent, you should consider coverage as there are essential services that a surviving parent would have to pay to replace, such as child care or housekeeping. To figure out how much life insurance to purchase, assess your family’s financial needs.
When you buy a life insurance policy, it’s generally not advisable to name young children as beneficiaries. If a beneficiary is a minor when you die, and a guardian hasn’t been determined, the court will likely have to appoint a guardian for the children before the life insurance company can pay the death benefit. As an option, you could set up a life insurance trust, which will receive the death benefit. You would name the trust as the beneficiary and appoint a trustee to manage the trust per your instructions. To set up a trust, speak to a lawyer.
5. Employment change
Having a change in employment, whether a new job or promotion, is also an opportunity to revisit your policy and possibly update your life insurance plan. Whether an increase or decrease in household income, the change can affect living standards.
6. Change in health
If you’ve become healthier through exercise or changed your habits in a way that significantly impacts your health, you could qualify for new life insurance rates. Lowering your blood pressure, giving up tobacco, or having surgery to reduce weight or rectify medical issues are examples of changes that might alter your health. Should you experience any of these changes, you may want to explore your policy options.
7. Care for loved ones
If you function as a primary caregiver to a loved one, review your life insurance to make changes for their benefit. If you leave a young child behind, your spouse may need to work full-time to pay the bills. This often means paying for child care. Other costs might include cleaning the house regularly or shopping for groceries. Additionally, if you are a caregiver for an elder relative you should consider the financial value of the support you are providing.
Caregivers often have a significant amount of out-of-pocket expenses. According to the AARP, a majority of family caregivers report that they spend an average of over $7,000 annually in out-of-pocket costs related to caregiving needs.1 Should something happen to you, those expenses may still need to be covered. Life insurance can help provide for those costs.
To provide for others, it’s vital that you care for yourself emotionally and physically. But in case something does happen to you, a life insurance death benefit can help the beneficiary financially.
Life Insurance can help your loved ones financially you predecease them. If it seems that there may be a shortfall, you could consider an additional life insurance policy. Either way, it’s a good time to review what you already have.
A life insurance policy’s primary objective is to pay a death benefit to your beneficiaries upon your death. You may be able to use the cash value in the life insurance plan to supplement income in retirement.
Often, life insurance can fall into the category of out of sight, out of mind; you purchase a policy and call it good. Resist the urge – review your life insurance policy should you experience any of these life events.