For some reason a lot of folks think once they buy a life insurance policy they can “set it and forget it” and they don’t give a second thought to asking good questions about their life insurance and addressing their insurance needs.
I am a big believer in reviewing your financial plans at least annually, and a thorough look at your annual plan should give you a reason to review your life insurance needs.
Figuring that you never have to review your insurance needs is one of the most common misconceptions about life insurance! But, if you don’t review your plan annually – or, for that matter, don’t have a financial plan, here are some guidelines to know when you should review your life insurance:
1. Your Income changed
Maybe you just graduated from college and landed a great job with some good benefits. How much life insurance do you really need?
Perhaps you got promoted in your company and now you’re looking at a nice raise – how does that impact your life insurance needs?
Or maybe you lost your job and it’s time to re-evaluate your life insurance situation.
Whether you got a new job or you lost one, it’s a perfect opportunity to do a review of your life insurance.
2. Your health changed
This is an important one! Let’s say you’ve been working out and eating healthy and as a result your blood pressure went down – congratulations, this may also affect your life insurance rates!!
Companies generally will reward you if you are in great health by offering you discounted premiums. You may want to call your insurance company and ask what kind of rates you’d get for a preferred health discount.
The discounts in many cases can be very substantial!
Now let’s say the opposite happens – you are diagnosed with diabetes or some other type of disease.
You may not be able to increase your individual policies, but you may want to increase your group policies through work because typically you don’t have to prove evidence of insurability.
So, review your life insurance when your health changes – it’s a good idea!
3. You lost weight
Related to health, but different enough to make a distinction. Let’s say you’ve been playin’ Wii Fit for the last five months and you joined the Biggest Loser fan club – as a result you’ve lost some weight!
Guess what, you may now qualify for preferred discounts!
You should get a new life insurance quote or give your company or a call to find out what kind of discounts are offered for their preferred rates.
4. Your family status changed
If you are expecting a child, you will soon begin to feel enormous pressure to provide for your little tyke. If you already have kids you know what I’m talking about.
It’s extremely important to sit down and ask tough questions like, “What happens if I die and my wife is left with the kids” or “Who will provide for my kids if I pass away?”
Maybe your kids are older, you’re wondering more about college savings and not that worried about life insurance any more. Or, you may need to increase your life insurance if you want to pay for their college should something happen to you.
Even though those conversations aren’t fun, they are crucial to providing for your children and important in the review of your life insurance.
5. Your housing status changed
Maybe you just paid off your mortgage and you don’t feel like you need that much life insurance any more.
Or, perhaps you just bought your first home and now you’ve got a liability that would need to be paid upon your passing.
Review your life insurance when your housing status changes – you may need more or less life insurance, but at the very least ask good questions about your needs.
6. Your marital status changed
Congratulations! You just got married – now review your life insurance! You now have a spouse, someone who may be dependent on you – it’s important to review how much life insurance you need.
On the flip side, unfortunately people get divorced very often these days and so your life insurance needs may change as a result also. Maybe you don’t need that much coverage any more.
7. Your beneficiaries may have changed
This one can be related to your marital status as well – you’ll want to make sure your new spouse is listed as your beneficiary or that your ex-spouse is not!
I’ve heard horror stories of folks forgetting to change their beneficiaries after a divorce only to leave their “ex” with a nice little chunk of change upon their death.
It’s important to review your beneficiaries regularly as well just to make sure you’ve got the bases covered.
Reviewing your life insurance is a very integral piece to your financial plan – don’t neglect it just because it’s not a fun topic to discuss!
What else would you add to the list?
{ 10 comments… read them below or add one }
ohh , this is review great , I see you write very good about Life Insurance Policy
Great article Jason! We’re just starting our life insurance policy and these are good tips for us to keep in mind going forward. Well written, great advice!
Thanks John!! Good job on getting that insurance started!!
Yikes, we got married a year ago and have yet to Really sit down and look that over.
I would stress the health issue – especially when you were a smoker! It can cut your premiums substantially.
Lencib, it’s probably time to start checking into the proper amount of insurance for you guys.
Lorne – great point a/b the tobacco rating – many times it’s over double the amount it would be for non-tobacco, so if you’re a smoker and have quit you may want to check into lowering your premiums!!
Thanks Jason for the great article. This article was personally relevant to me because I recently lost about fifty pounds. I informed my health insurance provider and they lowered by monthly premium by over $100!
Cedric – Wow! Congrats on the lost weight – that’s impressive!!! Not only are you healthier, but you’re $1,200 a year richer as well!! Thanks for sharing!
Does income really matter?
I thought the purpose of insurance was to cover expenses? If anything I would expect your insurance amount to re-adjust due to inflation before adjusting it for income, particularly if you would need the insurance to make payments on adjustable rate debt.
Joe – I think income matters a great deal! Insurance doesn’t just cover expenses, but in many cases is used as income replacement.
You may want to use your insurance to help fund goals like education, retirement etc. In many cases, just covering expenses doesn’t solve for goals like that.