When to update your life insurance coverage
Just as life changes, so too do your life insurance needs. A major life event, such as the birth of a new child, a divorce, buying a home, or opening a new business, can necessitate a change in life insurance coverage. Whether it’s adding or removing a beneficiary or adjusting your coverage amount, updating your life insurance coverage is possible.
The purpose of life insurance is to financially protect those who depend on you from the sudden loss of your income due to an unexpected death.
Geez – that’s a little grim, but this kind of protection is something we owe to those we love the most. As you have probably experienced, life is a process that can be best defined as subject to change. That being the case, your life insurance needs are also subject to change. When such change occurs, you need to consider whether or not your policy needs a refresh.
Here, we will discuss some circumstances which indicate that the time to change the life insurance coverage amount or update your life insurance beneficiaries has come.
There is no greater sign that it’s time to review your policy than marriage, divorce, or a change in the number of children in your household – and unless you are running a daycare, that means babies. Depending on your situation, a marriage or divorce can either improve or detract from your financial situation. But the main consideration in changing your insurance coverage amount and updating your beneficiaries is the number of people who may or may not need protection from an unexpected loss of your income and require help with the cost of living, mortgage payments, and final expenses relating to your death.
These triggers generally include:
- Birth of a child
- Loss of a loved one
Starting a New Business
Canadians start tens of thousands of new businesses every year. If you’re one of them, now would be a good time to review your life insurance policy. Not only may your risk profile change as you update the ways you earn a living, but the needs of your beneficiaries might also change. Checking in and updating your life insurance policy when starting a business is a good way to protect your family and give them financial security in the event of your passing.
Buying a Home
Buying your first, (or even second or third ) home can be pretty exciting. But once the bills start arriving and your insurance profile starts to change, it may be a key time to look at your life insurance policy.
You’ll need to ask yourself the following questions to determine whether buying a new home calls for a life insurance update:
- Would your spouse have trouble making mortgage payments without your income?
- Would your existing policy or death benefit cover the remainder of your mortgage?
- Would your existing policy cover the requisite years of childcare and continue to pay college tuition for your children?
- Would your policy cover whoever inherits the house?
- Could your current insurance benefits fill the financial gap you would leave behind?
Now that you know how many things can make checking in on your current policy necessary, it’s not hard to imagine how many other types of events might also require a life insurance check-up to make sure your beneficiaries receive what you intended.
Any significant change in your income, expenses, assets, liabilities, or risk profile should tell you that it’s time to review your policy and update your financial plan, as well as your insurance plan (and your beneficiaries).
To learn more about life insurance and find out what kind of policy best suits you, read our Honest Guide to Life Insurance. Our easy-to-use Life Insurance Calculator is another great way to get started. More questions? Don’t hesitate to contact us.
- Major changes, like buying a home or getting a divorce, are usually reasons to reevaluate your life insurance policy and coverage.
- You can benefit from an updated policy if you experience any significant changes to your income, expenses, liabilities, or risk profile.
- Updating your life insurance policy can involve changing or adding beneficiaries and reducing or upping coverage amounts.