Insurance policies may seem
like a relatively straightforward one-time decision. In exchange for regular
payments, policyholders have the right to a lump sum when they pass away. These
funds can be used to help cover final costs and ensure any dependents are taken
care of financially. Of course, the basic idea is made more complicated by the
many different types of policies available and the various coverage options
they include. In this article, we’ll take a look at when individuals may want
to consider reviewing their life insurance policies and what to look for when
doing so. When to Review Life insurance needs often fluctuate over time as an
individual’s situation changes. For example, a single young adult may not
require any life insurance at all, while a married father of four may require a
large life insurance policy to provide for his family if he unexpectedly passes
away. There are many important life events where it may become necessary to
explore purchasing life insurance or potentially change the terms of existing
life insurance. (For more, see: Should You Buy Variable Universal Life
Insurance?) Here are some common times to review: Getting Married – If your
spouse depends on your income, you may want to explore getting life insurance
to help meet expenses and pay off debts. The coverage amount depends on the
couple’s income, debt loads, and other financial aspects. Having Children –
Children are often the greatest consideration when it comes to life insurance.
After having children, life insurance can help your family meet both current
and future expenses if you were to pass away prematurely. Aging Children – Life
insurance may be unnecessary after your children have left the house, but
before canceling a policy, it’s important to consider the spouse’s needs and
whether or not life insurance plays a role in estate planning. Retirement –
Some retirees may also be able to eliminate their life insurance policies, if
they’ve paid down debt and have reliable income, but others may need to
consider adjusting their policies to take out cash to meet expenses. How to
Evaluate Life insurance products can be deceptively complicated, especially
when it comes to choosing the right riders and planning for taxes. For example,
some policies may not pay out in the case of an accidental death, which can be
problematic in some professions. An accidental death benefit rider provides
additional life insurance coverage if the policyholder dies as the result of an
accident rather than just by disease or old age. Some important issues to
review include: Beneficiaries – Are the beneficiaries listed on your policy
still valid? A divorce or other life event may warrant revisiting these
beneficiaries or reallocating funds. Premiums
– Are premiums fixed or set to increase over time? If policies are set to increase, does the added cost still fit into your household budget? Cash Value – Is the cash value of the policy where you expect it to be? In some cases, sales literature may be too ambitious in projections (e.g. IUL policies). Often times, it’s best to meet with an insurance agent once per year to review your policy and ensure that everything is in order. Additional visits may be necessary after important life events occur that warrant a change in beneficiaries or policy term. (For more, see: Is Life Insurance a Smart Investment After You Retire?)
– Are premiums fixed or set to increase over time? If policies are set to increase, does the added cost still fit into your household budget? Cash Value – Is the cash value of the policy where you expect it to be? In some cases, sales literature may be too ambitious in projections (e.g. IUL policies). Often times, it’s best to meet with an insurance agent once per year to review your policy and ensure that everything is in order. Additional visits may be necessary after important life events occur that warrant a change in beneficiaries or policy term. (For more, see: Is Life Insurance a Smart Investment After You Retire?)