Life insurance can be an important component of financial planning. It provides protection and peace of mind in case something unexpected happens to you. Permanent policies, like whole life insurance, even offer lifelong coverage and other benefits, like a cash value component.
But the amount of coverage you need isn’t static—as your circumstances change, so should your life insurance coverage. Here are five times when it makes sense to reevaluate your life insurance coverage.
1. Major milestones
Major life events, such as getting married, having a child, or buying a new home, can significantly impact your financial responsibilities and obligations, calling for an adjustment in your life insurance coverage.
When you experience a significant life change, take the time to reassess your policy and determine whether the coverage amount aligns with your current situation. You may need to increase your coverage to protect your loved ones adequately. Of, if you have fewer responsibilities—perhaps you’ve paid off your mortgage and have no other outstanding debts—you might not need as much coverage.
2. Changes in financial situation
Your financial situation plays a crucial role in how much coverage is appropriate. If you experience a significant change in your financial status, such as a salary increase or decrease, job loss, receiving an inheritance, or gains or losses from investments, it may be wise to reevaluate your coverage.
When you face a positive change in your financial status, you may want to consider increasing your policy coverage to ensure that your loved ones are adequately protected if something were to happen to you.
Conversely, if you face financial difficulties, you may need to reevaluate your life insurance coverage to align it with your current budget. You might consider temporarily reducing coverage to save on premiums while maintaining a basic level of protection for your family.
3. Starting a business
Entrepreneurs and business owners can reassess their life insurance policies when embarking on new ventures. Starting a business often involves taking on financial risks, such as securing loans, investing personal savings, or acquiring business partners.
Consider the financial implications your death would have on the business and your loved ones. Additional life insurance coverage can help protect your business and safeguard your family’s financial security if the worst were to happen.
4. Changes in dependents
Your life insurance coverage should reflect the number of people who depend on your income. If you have experienced dependent-related changes, such as children moving out of the house, elderly parents becoming financially dependent, a divorce, or the unfortunate loss of a dependent, like a spouse or child, it can make sense to reassess your coverage. By modifying your coverage, you can ensure your policy aligns with your current family situation.
5. When a term policy is ending soon
Term life insurance provides coverage for a set number of years. When your policy nears expiration, it’s important to consider how your coverage needs have changed. At this point, you’ll need to decide whether to purchase a different type of policy, like whole life insurance, take out another term policy, or explore other options.
The bottom line
No matter your current situation, it’s important to stay aware of any changes that could affect the amount and type of life insurance coverage you have. Regularly reevaluating your policy can help ensure that you and your family are adequately protected even if you are no longer around.