You may have to review your life insurance policy from time to time. Having a life insurance policy is essential. With a life insurance policy, your family or loved ones would not suffer financially, if you suddenly die. But then the most constant thing about life is that change happens. So even after purchasing your life insurance, you shouldn’t just ignore it and believe it should resolve all your future needs.
Also, a policy you must have purchased about 10 years ago might not be able to take care of your needs at the moment. This is why many professionals suggest that you need to frequently review your life insurance policy. This act will help you figure out if the life insurance coverage you have is still viable for your situation. Also, you will get to know if your current life insurance company is covering your needs.
What is an insurance policy review?
Your insurance policy review is a thorough analysis of your insurance coverage – including policies protecting your home, vehicles, family members, and other valuables. You can review your insurance coverage with the help of an experienced agent alongside your financial advisor to ensure you have the best coverage that is suitable for your unique situation.
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How is an insurance policy review different from a ‘free look period’?
It’s important to realize that there is a period when a new life insurance policyholder can review their policy and return it for a full refund. This is called the free look period and it often lasts 10 or more days after receiving your new insurance policy. The free look period comes as a result of the insurance policy being a legal contract that might need some review to ensure you are satisfied with the terms and conditions of the policy you have purchased. Let’s illustrate how the free look period works;
Let’s say you purchase a variable life insurance policy from your insurance agent. And then after signing up for the policy, you will receive your executed policy documents in the mail two days later. Your free look period may begin as soon as you receive those documents. In a state like Texas, you have about 10 days from receiving those documents to review and decide if you want to keep them. So perhaps, two days later, you bring the policy to your lawyer and he advises you to cancel and go to another insurer instead. As long as it’s within that free look period, you’ve got the law backing you to get your refunds and cancel the policy.
This is entirely different from the insurance policy review we talked about in this article, where your goal is to determine if you should upgrade your insurance policy.
Read this: Types of Life Insurance Policy and What Suits You Best?
How often should you review your life insurance policy?
You should consider reviewing any insurance policies you hold at least once a year should be a general rule of thumb for you.
Whether you are an individual or small business, this annual review process should be a steady practice to cover all your insurance needs. I bet you won’t want to be paying more than you require. This implies that every significant event that takes place in your life would definitely affect your life insurance coverage to some degree.
Nevertheless, some significant changes may not make much impact and might not require that you modify your insurance policy. Still, the regular annual review gives you an edge. So that, in case you suspect changes ahead, you can be able to prepare better for them before they come.
Life-changing events can prompt you to review your life insurance policy
As I said earlier, you can’t actually set down a special date to review your insurance policy. That’s where the yearly recommendation comes to mind. But then, there are specific events that might happen that would prompt you to review your policy as soon as possible even if it isn’t a year yet since the last review. In that case, you can discuss with your financial advisor, then contact your insurance company to make the necessary changes based on the advice given to you by your financial advisor.
Take a look at some of the life events that can prompt you to review your life insurance policy. These events might be positive or negative. But no matter what the event looks like, if it affects you, then review your life insurance policy. Below are some such events:
If you have a new mortgage
Have you gone for a mortgage just to secure a home? If yes, then it might look incredible and fulfilling as you and your family enjoy your new home. But, mortgages have to be paid! Which is a huge financial responsibility that will rest on your shoulders. In such a situation, experts would advise you to go for a term life insurance policy, that would at least cover the mortgage. So, if you happen to die while the policy is still in force, then the insurance company can pay off the mortgage with the money. Therefore, when you have a new mortgage, you should review your life insurance policy. So that it can cover it. Because, if there is sudden death, your spouse or other family members might be given the burden to pay off the added mortgage.
As your family increases
An additional member of your family might be a propelling factor to you reviewing your life insurance policy. This additional member of your family might be you have a spouse, child, grandchild, and so on. As your family increases, your financial needs increase too. At this point, let me ask you a question – what if you are no more, can your family still live a good life with the increased number of people?
If your answer is ‘No’! Then, as you go for a review after this new addition to your family, you will need to increase your life insurance coverage. So that, if you suddenly die, your life insurance policy would cover the additional member.
If your beneficiaries change
Since life is filled with changes, your beneficiaries can change. One major change might be you getting married. This might prompt you to review your life insurance policy, to accommodate your new beneficiary. As for a divorce, withdrawing your previous spouse might be the reason you need a policy review. Having to review your beneficiary frequently is important because you will not want to have your death benefit go into the hands of someone not qualified as your beneficiary.
Enhancements in your career
As life goes on, an enhancement in your career might occur or your business expands greatly. This usually translates into an increase in your income. Such an increase in your income should influence you to have a review of your life insurance policy. This action will be beneficial to your loved ones. It will help maintain their present lifestyle or even improve it.
A Snapshot of When To Review Your Life Insurance
- Getting married
- Getting divorced
- Receiving a substantial raise or promotion
- Taking out a mortgage or other loan
- Having or adopting a baby
- A child or grandchild who is born or adopted
- Receiving a substantial raise or promotion
- Taking out a mortgage or other loan
- Refinancing your home
- Paying off your mortgage
- Coming into an inheritance
- Buying a business
- Selling a business
- Having a loved one requires long-term care
- Becoming an empty nester
- Becoming disabled
- Experiencing a death in the family
- Experiencing a change in health
- Improved health outlook
- Receiving an inheritance
Concerning your other insurance policies such as policies for your valuables and car, you might want to review your coverage when for instance you purchase more high-value possessions on your property, take steps to increase the safety of your home, upgrade your electrical system, and lots more. If natural disasters happen in your area frequently, you might also want to update your policy to reflect those added risks.
Read this: When to consider buying life insurance?
2 vital things you should consider when reviewing your life insurance policy
All your financial responsibilities
Your current life insurance policy is meant to cover important responsibilities that you are meant to regularly supply income for. Now, the question is, if something tragic happens to you, will those things still be covered by your life insurance policy?
Things that might require coverage range from family healthcare, college tuition, business expenditure, mortgage, or any other thing else that might need coverage. Therefore, you have to know the important financial responsibilities that your life insurance policy should cover.
All your debt
Debt is something you can acquire as your life goes on. They can come in the form of borrowing capital to boost your business or mortgages. So, it is either you pay up your debt or acquire more debt. Therefore, when reviewing your life insurance policy, it is good that you remove those you have settled from it. The reviewed life insurance policy should cover the only debt you are yet to pay.
Having a life insurance policy is very important. But you must always review your life insurance policy to equally ensure it meets your current needs. At the bottom line, a yearly review should be a must. But don’t also overlook life events that might also require any review as well.