When Should You Update Your Life Insurance Plan?
Life insurance plays a very important role in our lives. With the right coverage, we get peace of mind as our loved ones will be more financially secure if anything should happen to us.
However, one life insurance policy doesn’t fit every situation. Not to mention that your lifestyle changes over time. Inflation drives prices up, your own expenses change over time, and you might start planning for an inheritance for the children.
Regardless, it is generally a good idea to review the terms of your life insurance every 12 months. It’s a good idea to have a quick look at your finances and see if your life insurance is still giving your loved ones enough protection.
Why change policies?
If you already have a comprehensive and life insurance policy, why would you want to switch companies or the type of policy you have? Well, there could be any number of reasons that could leave you unsatisfied. These include:
- Your priorities have changed – If your children have grown to adulthood and no longer need as much support, then you might want to change your coverage or policy provider.
- You need to move or remortgage – You might be using your life insurance to cover a mortgage. But if you move into a bigger home or remortgage, your debt is likely to go up. You might want to increase your coverage during such cases.
- You want to switch from term to whole life policy or vice versa – Once a term policy expires, you will no longer be covered. A whole life insurance on the other hand offers permanent coverage. Conversely, you could also opt to cancel your whole life policy for the simplicity of a term policy.
- You want another policy after your term expires – As mentioned previously, once your policy’s term is over, you will no longer be covered. If you still want some form of coverage, you might want to look at another provider that may fit your needs better.
- You can no longer afford the premium payments – Depending on what your policy covers, your premium payments can get very expensive. Consider switching policies if your current one begins to take a toll on your finances.
- Your beneficiaries have more (or less) financial need than you thought – Maybe you or your children had unexpected twins. Unforeseen circumstances may lead you to requiring more or less coverage from your policy.
These are among the reasons why you might find that your previous plan may not be what you want. That being the case, you may begin to consider looking for another life insurance provider or policy.
How to change your policy
If you are set on switching your life insurance, but are hesitant to do so because it seems difficult, then don’t worry. The process can be completed relatively simply, Here are a few steps to follow:
1. Choose the type of life insurance you want
The first thing you should do is decide whether you want a term policy or a whole life insurance. Term insurance lasts for a certain period of time and may require a medical examination. Generally, term policies are cheaper than permanent life insurance, but it can get more expensive as you get older due to being more vulnerable to injury and disease.
Whole life insurance on the other hand, may cost more upfront, but they do not expire under most circumstances, as long as you continue to pay the premium. These policies can have additional benefits, such as a cash value account that accumulates throughout the life of the policy. If you are not sure how to proceed, you can consider speaking with a financial advisor or licensed insurance agent for advice.
2. Decide how much coverage you need
After figuring out what kind of policy to buy, you will need to determine how much coverage you want. Consider the benefit payout you wish to cover and how you would want your beneficiaries to use it. Do you want to replace the income for your partner? Or do you want to leave an inheritance for your children? Are there any debts you want to make sure are settled if you pass away prematurely? The death benefit amount you choose will depend on what you want it to be used for and how much you can afford to purchase.
3. Check if you can adjust your policy
Once you know what changes you want to your policy, ask your current insurer or agent to find out if you can make changes to your ongoing policy to fit your new needs. They might say no, but it does not hurt to ask.
Apply for your new policy if needed
If you are not allowed to make changes to your existing policy and have decided to get a new one, you will have to apply through an insurance agent or directly through an insurer.
Depending on the type of policy, you may be required to undergo a medical examination. If one is not required, it is entirely possible that you will need to pay a higher premium, as the life insurance company will have to account for the greater risk involved with your health.
There will probably be a waiting period before you are notified of your insurer’s acceptance of your application, even more so if you are switching companies.
Check that your policy is active
Before canceling your old policy, make sure that your newly purchased one is active. Just to be safe, you likely would not want a gap in your coverage. This is especially true if there is a waiting period before your new policy will pay out on some claims.
Certain policies may even have a contestability period where your insurer can deny or contest claims. Always double check your terms and conditions before you make the switch.
Remember, when thinking about making a switch in life insurance, talking with a licensed insurance agent as you go along can help you to get the most out of your new policy.