As a general rule of thumb, any insurance policies that you currently have should be reviewed on an annual basis. Whether you’re an individual or a small business, this needs to be a regular financial practice for all insurance needs – after all, you don’t ever want to come up underinsured, or be paying for more than you need.
This is an especially important practice when it comes to life insurance for one simple reason – life changes frequently. As a result, your life insurance coverage is going to change with every major life event at least to some degree. Performing regular reviews of your life insurance coverage will insure that your beneficiaries are always covered (after all, anything can happen at any time), it’ll keep your premium costs exactly where they should be, and you can determine if your current carrier is still meeting all of your needs or if shopping around is necessary.
How Often Should I Be Reviewing My Life Insurance Policy?
As mentioned, the general rule of thumb is every 12 months – this is what any financial advisor worth their salt will advise. Of course, if you haven’t had any big life changes within that period of time, you might find that your coverage is adequate and doesn’t need to be altered. All the same, it’s always best to know for sure, right? Right!
You’re pretty much guaranteed to have to make alterations at least every couple of years, so checking in yearly will paint a picture of the future for you. If you can see changes coming, you can better plan for them in the year prior to this change.
How Life-Changing Events Should Spur Life Insurance Reviews
In some cases, you’ll know something major is coming a little ways out and can plan for the life insurance alteration in advance; in other cases, things will come up unexpectedly – or life got away from you and it came up quicker than you had time to plan for.
For the later, you’ll want to conduct a life insurance policy review as soon as possible. Contact your financial advisor to discuss, then contact your life insurance company to make the alterations decided upon between you and your advisor.
Some life events that will require a reassessment of your life insurance financial needs include:
- birth of a child
- purchase of a home and/or vacation home
- sending your children to college
- caring for an ill relative
- increase or decrease in annual income/net worth
All of the above could take a substantial chunk out of your savings, a savings that you’d allotted for something else, and your life insurance can help offset the loss.
There’s also a few really exciting life changes that can change your life insurance needs, such as:
- your business hits it big!
- you’ve come into an unexpected inheritance!
- you won the lottery!
For all of the above, you’ll need to make new financial decisions. Do you want to leave more money for your beneficiaries and want to buy more coverage? Do you want to funnel some of your funds into other profitable investments, and re-adjust what’s going where? These are all questions that will need addressing.
Things to Consider During the Review Process
- Consider all debt – As we go through life, our debt increases and decreases – we take on mortgages or sometimes borrow capital for a business venture, then we pay them off. All debts still to be paid need to be covered by your life insurance and coverage can be removed for all debts you’ve settled.
- Consider all financial responsibilities – What are the important financial responsibilities that you currently supply income for? Will all of them be covered if something happens to you? Whether it’s college tuitions, family healthcare, business expenditure, or anything else, all should be covered by your life insurance just in case of tragedy.