When Life Happens: How Major Life Events Affect Your Life Insurance Needs

Introduction: Life Changes Fast, Your Coverage Needs to Keep Up

Many people leave their life insurance policy to collect dust, ignored after its initial purchase. But life is full of change. Goals and responsibilities shift. It’s important to review your life insurance to ensure the coverage still aligns with your situation. An outdated policy could lead to lost protection and opportunities.

This guide goes over the key life milestones that can impact life insurance, and how to adjust your coverage amount, beneficiaries, and policy structure for the best results.

Life Insurance Is a Living Part of Your Financial Plan

Coverage should reflect your current responsibilities at any moment. What was relevant in the past for your life insurance might no longer be now, or in the future. Because of that, it’s best to make periodic adjustments according to major changes.

Let’s go over a hypothetical example. Say you used to have a cheap life insurance policy for only $10,000. It’s enough to cover funeral costs and not much, but it was all you could afford. Now, you have a new source of income, and children you want to send to college. It doesn’t make sense to keep the same cheap life insurance policy. Instead, most people would benefit from switching to a higher coverage life insurance policy.

Income, debt, and dependent situations change over time. You may need to update your beneficiary designations–such as when a new loved one enters the family. You may start wanting cash value growth, or a customized policy that offers better coverage. You may want to support a charity. Only by reviewing your life insurance policy can you make a change that reflects your new needs and goals.

What to Review During Any Life Insurance Check-In

Coverage amount

How much life insurance coverage you want affects your policy choices and premiums. Some universal life policies let you adjust your premium and coverage amounts despite being permanent life policies, giving you more control.

Policy type (term vs. permanent)

Term life insurance only lasts for a set amount of years. It is less committal and can be used for specific purposes (e.g. cover until mortgage is paid off or child gets their own job).

Permanent life lasts forever (as long as you are keeping the policy active, in force). It offers cash value growth, extra benefits, and adjustable coverage options. The healthier you are, the more affordable permanent life is.

You can usually switch from term life to permanent life with the same life insurance company. However, it’s more expensive to do it in the opposite direction and can cost you surrender fees. If you are sure you don’t want a permanent life insurance policy anymore, you can pay a penalty to lose it.

Beneficiaries and contingents

The main beneficiary is designated to receive the life insurance payout. You can split the life insurance payout if you have multiple life insurance beneficiaries.

Contingent benefiaries receive the payout if the primary beneficiary or beneficiaries cannot.

Riders and add-ons

Life insurance riders and add-ons are used to customize your policy to make it fit your situation better. You can check your life insurance company to see what options they offer.

It is very common for people to purchase chronic and critical illness riders so that if they become ill and require money for medical treatment, their life insurance can help out.

Waiver of premium riders are also popular, because they ensure you don’t lose coverage even in the event of a major disruption, such as a disability that hurts your income.

Employer vs. personal coverage balance

Do you already have employer-granted life insurance? This is usually coming from group term life insurance, and it can be lost if you lost your job.

It is typically recommended to get your own life insurance coverage so that it is not dependent on your employer.

Now, let’s go over major life changes and how they can impact your life insurance.

Marriage or Entering a Long-Term Partnership

Having a spouse or long-term partner typically means sharing your income and your debt. The new financial dependence and connection mean you need to change your life insurance accordingly.

1. Increase coverage

Generally, you’d want to increase your life insurance coverage to protect your spouse. Add or update your spouse or partner as the new beneficiary. See if there are any names you need to remove from your beneficiary list.

2. Consider joint financial goals and future children

Don’t have a child, but plan or expect to? You may want to obtain life insurance so that it is enough to cover future childcare expenses.

3. Supplement employer coverage with personal insurance

Whether you or your partner have life insurance from your work benefits already, it may still be useful to have personal life insurance. That way even if the job situation becomes unstable, the life insurance coverage won’t be negatively impacted.

Having Children or Expanding Your Family

Welcoming new children or otherwise expanding your family can majorly impact your life insurance situation. Suddenly, you have new dependents who rely on your long-term care and/or financial support. Education and childcare costs increase your monetary requirements and goals.

Once you have children, it’s time to consider:

• Adding significant income replacement coverage
• Choosing a term life policy with a term that is aligned with child-raising years
• Child riders or permanent policies for financial stability and planning
• Updating beneficiaries and guardianship plans

Buying a Home

Buying a home means introducing long-term debt to you and your loved ones in the form of a mortgage. Housing stability becomes a priority, and if you pass away, what happens to mortgage payments?

Aspiring homeowners need to Increase life insurance coverage to match their mortgage balance. If you want, a term life insurance policy can be convenient and more affordable since it lets you align your term length with the mortgage term. This ensures beneficiaries can maintain the home even if you pass away.

Career Changes or Income Increases

If you start making more money, you become able to afford better life insurance.

Lifestyle inflation is another factor to consider. People with more income often start spending more money, incurring greater financial obligations like mortgages and subscriptions.

Employer life insurance weaknesses

Employer life insurance may change or disappear if you switch jobs.

What to do

• Recalculate income replacement needs with your new income
• Replace lost employer coverage
• Get personal life insurance to prevent overreliance on employer life insurance

Starting a Business or Becoming Self-Employed

When you start your own business or become self-employed, you typically end up losing the employer-given benefits of group life insurance. You also may take on business debts and loans, new responsibilities that need to be managed. During this period, it’s important to review your life insurance and:

Add personal coverage to replace employer benefits Consider key-person or buy-sell insurance Protect co-signers and partners

Divorce or Separation

Divorce and separations mean a shift in financial responsibilities. Sometimes, it means you need less life insurance.

Beneficiary designations may be outdated, so check your life insurance policy. Policies may automatically remove a beneficiary if you divorce them—this may or may not match your situation.

In general:

• Update beneficiaries immediately
• Adjust coverage to reflect child support or alimony obligations
• Comply with any divorce agreements that require life insurance coverage

Supporting Aging Parents or Dependents

Any aging dependents may no longer have financial stability as they lose their income sources. This means you might take on new caregiving and financial responsibilities.

Unfortunately, caretaking long-term care costs are constantly increasing from year to year. This means you may need even more life insurance than expected.

Increase life insurance coverage to support your aging loved ones’ long-term care needs Consider permanent insurance for long-term goals and protection

Approaching Retirement

As you approach retirement, it might be time to modify your current life insurance situation. This is because income dependency often decreases as you are about to retire. Estate and legacy planning become priorities.

So what should you do regarding life insurance, exactly, as you plan for your retirement? First, see whether you need term life insurance coverage at all. It may make more sense to switch to a permanent policy (if your insurer still allows it, as many have age restrictions). This can help you gain tax-deferred cash growth and other benefits that are better for estate plans and tax strategies.

Recommended Review Schedule

Every 2 years is a good guideline to routine review your life insurance plan (and the rest of your estate plan). Understandably, many people find 3 to 5 years a more workable schedule.

However, you should always review your life insurance plan as soon as possible after major life events.

In addition, if your income level, debt, or goals change significantly, it is a good idea to review your life insurance policy to see whether you need to make any adjustments.

Signs Your Coverage Is Outdated

If your coverage hasn’t been looked at in 5 years, absolutely look at it now. Major life changes often occur every half decade. If you don’t make updates as needed, it can lead to problems with your life insurance policy. Keep your beneficiaries up to date. Some people even forget to put a beneficiary at all–a more common mistake than one might think.

If the employer benefit of life insurance is your primary life insurance coverage, it is also important to see whether it still works with you.

Ways to Update Coverage

Life insurance can be modified in many ways, such as:

• Add a new term policy
• Convert term to permanent
• Layer multiple term policies
• Add riders for flexibility

Some policies also let you apply to adjust the premium or coverage amount. These flexible premium policies can be very useful if you are worried (or hopeful) about your income stability.

Balancing Affordability With Protection

People can get roped into buying more life insurance than necessary. It’s important to balance what you’re getting so that you aren’t overinsuring when you can’t afford it, and you also aren’t underinsured when you need the coverage most.

Adjust coverage as obligations decrease or increase over time.

Assuming Coverage Is “Good Enough Forever”

While life insurance can offer lifelong protection and security after death, it should adapt as needed. Your coverage probably won’t automatically adjust after major life events except in very specific cases.

Forgetting to Update Beneficiaries

If you don’t update your beneficiaries manually after major life events, you might end up giving the huge life insurance payout to someone who doesn’t deserve it, or just simply the wrong person. This can lead to legal complications, delays, and chaotic disputes.

Relying Solely on Employer Coverage

It’s suboptimal to only have employer coverage if you can afford personal life insurance. Employer coverage can be fleeting, lost if you switch jobs. Although, some employer life insurance policies do allow you to carry the policy to a different job even if you leave the current job. Check your employer's benefits.

Coverage may end unexpectedly if you only have employer-granted life insurance coverage, so it’s generally a good idea to get supplemental life insurance coverage to avoid gaps in protection.

Conclusion: Let Your Life Insurance Evolve With Your Life

Life insurance works best when it reflects your current responsibilities and future goals. Review your coverage after major life events so that the people who depend on you are properly protected at every life stage.

We’ve curated the best life insurance companies for you to find the policy that aligns with your goals at any time.