According to LIMRA, an insurance and financial services organization, nearly a third of all Americans have no insurance coverage while many more are under-insured. Life insurance can provide a critical safety net for beneficiaries. Expenses after a death can be immediate and expensive, and they do not disappear after a few weeks or months. Even at-home partners need life insurance—one source estimated that an at-home spouse can save a family more than $100,000 annually.
Reviewing a life insurance policy encompasses several different factors. First, the policyholder should ensure the correct beneficiaries have been named. Beneficiaries can be family members, the policyholder’s estate or charities. If the desired beneficiaries have changed over the years, the policyholder will need to contact the insurance company and make necessary adjustments. A review of a life insurance policy should also include a look at the premiums and benefits to determine if they are designed to change from year to year, whether they are guaranteed and how the benefits accrue. A life insurance policy should explain if and how its cash value can be accessed when needed and whether it can be converted into another policy.
Review Needs Annually & Cautiously
Life is often said to be a moving target. Life insurance needs can change as rapidly as life itself does. However, while an annual review is necessary to ensure your policy is sufficient to meet your needs, switching policies frequently may not be in your best interests. Policy rates can and do rise, sometimes quite sharply. Policyholders who currently enjoy low rates should carefully consider before switching policies simply to get a less expensive rate. Changing policies may also prompt a closer look at the applicant’s health status, which may have changed in the meantime. Most policy holders will do best to only change policies as needed.
When to Update a Policy
While shopping for cheaper rates may not always be the best reason to change policies, major life changes usually are. A change in health status, inheriting money from a family member and taking on the responsibility for the long-term care of a loved one are all some of the changes that can affect an individual’s life insurance needs. Marriage, birth, adoption, death, retirement and major purchases, such as a home, can dramatically alter a person’s need for coverage.
Individuals may also need to update their policies when their children are heading off to college or leaving the nest.
In the end, anything that affects an individual’s day-to-day expenses can affect his or her insurance needs. The short-term expenses associated with a death remain fairly stable over time, but the long-term expenses can vary widely depending on whether small children are living at home, older children are in college or a spouse is in an assisted-living facility. Regular reviews can help ensure a policy-holder’s long-term needs are covered.