Since life circumstances change over time, life insurance policies must be updated to reflect those changes. As a rule, it is best to review coverage at least once per year. When doing this, spend some time pinpointing major life changes over the past year. Meet with a personal agent to go over a list of events to ensure adequate updates. To evaluate current coverage, ask these self-assessment questions:
- Did marriage status change this year?
- Were any babies or adopted children added to the family?
- Did a spouse, child or other dependent family member die?
- Did personal debt amounts change?
- Have interest rates changed since the policy was started?
- Did working or retirement status change?
- Was there a change in income?
- Was there a partnership or ownership change in a business?
- Was a new key employee added to a personal business?
- Was any money inherited recently?
- Do parents require financial help?
- Were there any major health status changes?
- Did smoking status change?
Some of these criteria such as being a smoker will affect life insurance pricing on the insurer’s end and on the policyholder’s end. Major life events and income or debt changes are good reasons to increase a coverage amount. This is not required by the insurer. However, it is important to leave enough money to cover debts, final expenses and some living expenses for heirs. If there was a significant income increase, a person may want to add more money to a life insurance policy for a child’s future college fund or for an elderly parent’s skilled care.
Also, another topic commonly overlooked by consumers is insuring a spouse who is a stay-at-home caregiver. Men and women who stay home to take care of the house and the children make vital contributions. If they die, the main breadwinner is left with the expense of finding someone to care for the children and the home. Paying for child care and a housekeeper can be expensive. It is important for stay-at-home caregivers to have life insurance as well.
Term life insurance is a popular choice. People purchase it for a specific amount of time such as 30 years. If the policy’s term expires without it being renewed, the policyholder is no longer covered. There are other types of policies that do not expire, and the payout and premium remain the same regardless of health or age changes.
A person who buys a term life insurance policy at age 30 for a term of 30 years would pay much less at that point than he or she would pay to renew it at age 60. If the individual started smoking and had multiple health problems, the cost to stay insured would be significantly higher. When choosing life insurance or updating it, always keep a long-term plan in mind. People with term life insurance policies can convert them into permanent policies before they expire.
The right policy choice for each person depends on personal circumstances, health status, age and budget allowances. Although universal life insurance may be a better option than term life insurance, it is more expensive. However, having an affordable term life insurance policy is better than going without life insurance. To learn more about life insurance options and how much coverage to purchase for individual circumstances, discuss concerns with an agent.