Life insurance is an important part of financial planning. It could provide a safety net for loved ones in the event of an unexpected loss. However, as life circumstances change, the amount and type of coverage that was once appropriate may no longer be sufficient. Regularly reviewing your life insurance policy helps ensure that it remains aligned with your current responsibilities and financial goals.
When to Review Your Life Insurance Coverage
Marriage
Marriage can involve shared financial responsibilities, such as combined incomes, joint debts, and major purchases like a home. Life insurance coverage may need to be adjusted to help provide financial support to a spouse or partner in the event of a death.
Update to consider: Increase coverage to reflect combined financial obligations and designate or update the beneficiary to ensure clarity.
Divorce or Death of a Spouse
Divorce may require updates to policy ownership and beneficiaries. It may also involve a reevaluation of financial obligations, such as alimony or child support. In the case of a spouse’s death, beneficiaries and overall coverage goals may also need to be reassessed.
Update to consider: Remove former spouses as beneficiaries if desired, and ensure designations reflect current intentions.
Birth or Adoption of a Child
Adding a child to the family typically increases financial responsibilities. Life insurance coverage may need to be increased to account for the costs associated with raising children, such as daily care, education, and future financial support.
Update to consider: Name a custodian for minor children in the policy to manage the benefit on their behalf if needed. Review the appropriateness of including adult children as beneficiaries.
Buying a Home
Purchasing a home could represent one of the most significant financial commitments a person or family will make. With that commitment comes the need to ensure that the mortgage and related housing expenses can be managed even in the event of an untimely death. Life insurance can be important in helping to provide financial continuity for surviving family members, especially if one person’s income is relied upon to make monthly payments.
Coverage Considerations:
When reviewing your life insurance after buying a home, consider more than just the remaining mortgage balance. It’s important to account for related costs such as:
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Property taxes
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Homeowners insurance
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Utilities and maintenance
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Ongoing repairs or renovations
Change in Income or Employment
An increase in income may justify higher coverage to reflect a higher standard of living or future financial commitments. A decrease in income may prompt a review to maintain affordability. Changing jobs may also affect any employer-provided life insurance coverage.
Update to consider: Evaluate whether your current policy meets your needs independently of workplace benefits and adjust accordingly.
The Role of Beneficiary Designations
Beneficiaries receive the death benefit from a life insurance policy. It is important to review these designations periodically to ensure they are accurate and reflect current intentions. This review is particularly important after major life events such as marriage, divorce, the birth of a child, or the death of a beneficiary.
Key considerations:
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Ensure beneficiaries are up to date and legally valid.
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Review contact information for accuracy.
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Consider listing contingent beneficiaries.
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Notify beneficiaries of their designation and the insurer’s contact details.
How to Review and Update a Life Insurance Policy
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Schedule a Policy Review
Contact your financial advisor to conduct a comprehensive review. -
Evaluate Coverage Needs
Reassess financial responsibilities such as debts, living expenses, income replacement, and future goals. -
Verify Policy Details
Confirm the accuracy of death benefit, premiums, cash value (if applicable), and any policy loans or riders. -
Review Beneficiary Designations
Ensure beneficiaries are current and reflect intended distributions. -
Consider Additional Coverage or Riders
Explore the need for critical illness, disability, or other supplemental riders. -
Document and Plan Regular Check-Ins
Keep a written record of changes and set a reminder for annual reviews or after significant life events.
Life insurance is most effective when it reflects current personal and financial circumstances. Regular reviews help ensure that policies remain aligned with long-term goals and family needs. Working with a qualified advisor can help identify necessary updates and support confident decision-making.
Investment Advisory Services offered through Trek Financial LLC., an (SEC) Registered Investment Advisor.
Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 25-218