As a rule, there is nothing wrong when you buy life insurance, keep paying the premiums in time and go to life as usual. But sometimes doing so may undermine the best interests of your beneficiaries. To make sure that it does not happen so, you need to look back at and review your policy. Sometimes it may lead you to update your life insurance policy.
Many people ignore the issue. And, the consequences may affect their beneficiaries in a way they would not want their heirs to happen to.
They may suffer in the following ways:
- They may remain under-insured.
- Insurance protection may go off from them.
These are the 8 situations when you should decide whether you need to update your life insurance policy or not.
Rise in Income Through Increment, Promotion or Job Change
Rise in income naturally translates into rise in financial liabilities: expenses go up for improved lifestyle, better education, better healthcare, better home and so on. So, you need to retrospect at your insurance policy to make sure the rise has its reflection on your policy.
While determining your life coverage, you inevitably calculate how much life insurance your family might need to replace your income if you pass on suddenly. When your income varies for better, you had better take a look at your policy and stay sure that the income replacement is alright: updated.
Similarly, you need to revise your insurance policy to make sure that the other life insurance needs criteria have their reflections on the policy so that your heirs do not have to lead a substandard life.
Addition of a New Member to the Family
Birth or adoption of a child should be another must-do consideration for you to revise your life insurance policy. If you think the newly born or adopted child will benefit from the policy automatically as a legal heir, you are in the wrong. You need to revise your life insurance policy on your own to ensure the protection of the new family member.
The reason is life insurance policies are contracts. As such they do not work the way property laws do. They mercilessly adhere to what is documented in the policy papers. This is why updating the beneficiary is essential when you have a new child in the family.
Welcoming a step child also should have its name in an updated policy.
When a Beneficiary Passes on Early
Life insurance beneficiaries or nominees are folks we buy an insurance policy for. They are supposed to outlive the policyholder and benefit from the policy in the event of his/her death. But it might so happen that the beneficiary dies prior to the policyholder’s death. It is important in such case to update the insurance beneficiary.
Even if you have made multiple beneficiaries, which means you have made secondary beneficiaries besides the primary beneficiary, you need to inform your insurer about the happening. Else, if the primary beneficiary dies first, the other beneficiaries will need to prove the primary beneficiary’s death. Likewise, if the arrangement is made in a way that the death benefit should come in proportions, there might be questions with regard to the death of any of the beneficiaries.
When the Beneficiary Is Unfit
The person who you have made a beneficiary to your life insurance policy may prove not to be the right person in 2 ways:
1) He/She may prove to be an unreliable or irresponsible person over time.
2) He/She may be physically or mentally unfit for the benefit.
In either case, you should review and update your life insurance policy.
When You Purchase a New Home
Making a purchase of a new home shoulders an additional financial liability on you. If you happen to die suddenly, your dependents will have to bear it. Make sure that the life insurance policy that you have already purchased covers the mortgage loan so that your heirs do not suffer when you cannot be by them. If it falls short of or lacks the mortgage, updating is necessary.
As You Marry or Divorce
Both getting on or off the wed-boat can be reasons you need to reconsider your life insurance policy for. When you marry someone, it becomes your responsibility to get your partner insured for protection past your death.
Similarly, when there is divorce, there is no reason to keep your divorced spouse the beneficiary to the policy. You will need to make changes to your life insurance policy to reflect the change in your life situation.
Also, if you have children together, you will need to find out ways to protect their future best through discussion. Life insurance can play an important role in securing the future of your children. For example, you may decide to keep the mother the beneficiary if they stay with her. Or, you may choose to change the beneficiary from the mother to a trust.
When Your Dependents’ Health Status Changes
There may be changes in health status of the beneficiaries. If it goes for the negative tilt, they will require more money when you might not be by them. If such a situation arises giving you the feeling that the dependent might need more money in the future, you should give attention to your current coverage. That means you need to update your life insurance policy.
When Beneficiaries Won’t Need Protection
Updating insurance an policy does not necessarily have to mean you need to change the beneficiary or raise your coverage only. It may also mean that you may choose to lower the coverage.
While determining the life insurance need, one of the biggest considerations for you was the education of your children. It often involves hundreds of thousands of dollars that raised your life insurance cost.
By the time you retire typically in your 60s, your children may have completed their education. They may also have gotten themselves in the payroll. Slicing off the amount you settled on during signing up on your life insurance plan can be a realistic approach for you.
If you have purchased a universal term life insurance policy you can change the coverage in accordance with your need. Similarly, when you are a policyholder of a universal whole insurance you can adjust your coverage to what you need.
Obviously, this is going to benefit you by lowering the premiums on the policy.
When to Update Your Life Insurance Policy
There are two times you may choose to update your life insurance policy:
- Whenever you find it necessary to make changes in the policy. For example, if you wish to change your beneficiary, you may talk to your agent at any time of the year.
- When you receive mail from your insurer informing you of the open enrolment season that annually takes place.
Don’t just forget that your life insurance policy could be of the highest value if your beneficiaries would ever need it. It deserves a yearly scrutiny for those who you purchase it for.