When to Revisit Your Life Insurance Policy: Life Events That Should Trigger a Review

As Your Life Changes, Your Insurance Should Too

Many policyholders buy life insurance once and never look at it again. But even if the coverage is lifelong, you should still review it as your income, family situation, and financial needs change. This is crucial after major life events, such as marriage, income fluctuation, or welcoming a child into the family.

In this guide, we will break down the key milestones and events that require you to review your life insurance policy, as well as what to do during a review.

Your Policy Should Grow With You

Coverage needs can increase or decrease over time, whether that’s because of major life events, new relationships, or simply inflation. It is wise to check your policy after “triggers”, such as divorce, so that you can make the necessary changes. You may need to modify the policy’s beneficiaries, or get a new policy that helps you satisfy your financial responsibilities.

Income fluctuations can impact your policy’s affordability in the long run. If you think it will be difficult to afford your term life policy, it may be wise to renew it with a lower, more affordable coverage amount. On the other hand, increased income can mean more expensive financial goals, and more coverage might make sense.

What a Policy Review Includes

Confirming coverage amount

See if your coverage amount is still enough when reviewing your policy. If it’s not enough, you can try to adjust the coverage for the next term.

Some policies have adjustable death benefits. They let you change your coverage amount even while the policy is active.

Reviewing beneficiaries

Beneficiary designations might need to be changed after major life events or relationship changes. Be sure to use their full legal names so that there is no confusion.

Checking policy type (term vs. permanent)

Consider whether a new type of life insurance would be better for your needs. This usually means switching from term to permanent, choosing to renew with a different insurer, or otherwise changing insurance policies.

However, some families benefit from switching from permanent life to term life. Surrendering a permanent life insurance policy can be expensive, but if you feel like it isn’t for you anymore, it is still viable.

Evaluating riders or add-ons

Life insurance riders, add-ons, and endorsements can be used to customize your policy. If you have a specific need, like wanting to waive premiums in case of critical illness, check out available riders.

Determining affordability & relevance

Is your life insurance still aligning with your financial goals? Is it too expensive to maintain active coverage? How relevant is your coverage? These are all questions to ask when reviewing your policy.

__Assessing cash value performance (for permanent life) __

Permanent life insurance, universal or whole, comes with cash value growth. It’s good to know how much value has accrued.

Event #1: Getting Married or Entering a Serious Partnership

Becoming a serious partner to someone else comes with a lot of responsibilities. This could be:

• New financial obligations
• Combined debts
• Home ownership or mortgage

It also means you have a new dependent: your spouse or partner. You would want to protect your spouse even if you die, so updating your beneficiaries to include them is a common first step.

Event #2: Having a Baby or Growing Your Family

One of the biggest triggers for increased coverage is having new members in your family. It increases your financial obligations in ways such as:

• Childcare
• Education
• Emergency fund requirements

If you have a new baby, consider adding or adjusting your term coverage for at least 20 to 30 years. This is the common period of dependency.

Event #3: Buying a Home

Life insurance is actually huge for buying a home, though it may not occur to many homeowners. Essentially, life insurance serves as mortgage protection.

If the main income earner of the family passes away, mortgage payments may become difficult to meet. Surviving loved ones may become forced to sell. Life insurance proceeds can prevent foreclosure and the painful possibility of losing the real estate.

You can opt to align your life insurance coverage term with the length of your mortgage term for more efficient value.

Event #4: Career Changes or Income Growth

Going up in your career ladder is great. What many people don’t consider is that promotions and salary increases can actually lead to greater lifestyle expenses and expectations.

Plus, changing employers can alter any group life coverage you were receiving. New job hazards may also affect life insurance rates. For example, construction workers may need to pay much higher life insurance premiums than accountants.

Look out for the opportunity to upgrade to permanent life insurance policies or add useful riders as you increase your income or switch jobs.

Event #5: Starting a Business or Becoming Self-Employed

New business or expansions

Starting a business is exciting–but it brings about a lot of new financial requirements and obligations. You may incur new debts, business loans, or investor agreements.

Key-person insurance is a special type of life insurance to fund business purposes and buy-sell agreements.

Becoming self-employed or between jobs

Freelancing, contracting, or changing careers means a lot of income volatility. This means your family would benefit greatly from steady life insurance coverage, but it’s also harder to afford monthly premiums.

If you lose your employment, you likely also lose employer-given life insurance benefits. This is why supplemental life insurance is highly recommended even if your work position provides it.

Event #6: Getting Divorced or Ending a Partnership

Any life events that involve severing relationships should trigger a review of your life insurance policies. You may need to remove or update beneficiaries. It’s also time to think about protecting your children through new life insurance beneficiary terms, or change coverage amounts to meet new financial obligations.

Divorce agreements may require maintaining a life insurance policy. See your divorce attorney to see how your life insurance may be impacted.

Event #7: Taking on Significant Debt

Life insurance should be enough to match your family’s financial obligations.

• Private loans
• Co-signed student loans
• Business loans
• Home equity lines

It is important to know that all debt is not automatically shared between spouses or family members. After passing away, your estate is responsible for your debt, so probate court may sell assets to meet debt requirements. This could indirectly affect your beneficiaries who would be inheriting your belongings. However, your loved ones are not typically required to accept these debts unless they have co-signed a loan. It’s good to warn them to not automatically agree to repaying your debt unless it is actually required by them.

Event #8: Experiencing a Major Health Change

If you get seriously sick or into an accident, this can affect insurability in the future. It may be wise to lock in life insurance coverage or increase coverage before conditions worsen.

Not sick yet? This could be a good time to review life insurance riders for critical illness or long-term care. Many types of riders are useful in case you fall ill or become disabled and can no longer maintain the same income level. For example, adding a waiver of premium rider to your life insurance product can allow you to pause premiums if you become seriously ill/disabled without impacting coverage. These riders usually have an age limit or other requirements, so it is best to look into them while you are younger and healthier.

Event #9: Children Reaching Adulthood

Once your dependents become independent, you may want to reduce your life insurance amount. You could look towards retirement-focused planning as your children reach adulthood and start getting their own jobs.

What should reducing your life insurance actually look like? It can mean cancelling your insurance altogether, though this isn’t advised. Your children could still benefit immensely from having some sort of extra financial inheritance if you pass away.

Plus, life insurance isn’t only for your beneficiaries. It may be useful for policyholders to shift from term to permanent depending on their new goals. Permanent life policies come with cash growth, and you could take loans against your policy or withdraw the cash from them in emergencies.

Event #10: Approaching Retirement

For retirees or those approaching retirement age, life insurance becomes part of legacy planning. You start thinking about how you want people to remember you. You start thinking about estate taxes and long-term care.

Remember to review whether term policies are expiring and what beneficiaries may need to be updated.

If you have a permanent life insurance policy, you can also see whether you want to use the cash value for any retirement purposes.

Changes in State Laws or Taxes

State or federal laws can change, impacting your estate plan and life insurance requirements. Key changes to watch out for include:

• Estate tax thresholds
• State-level inheritance rules
• Tax advantages of permanent life insurance

Significant Changes to Your Beneficiaries’ Lives

Your beneficiaries’ situations can change to the point where they impact your life insurance policy. Some of them are excellent news–others could not be worse. Possibilities that would trigger a life insurance review include:

• Death of a beneficiary
• Birth of new children or grandchildren
• Financial hardships
• Medical challenges
• Changes in dependency or support needs

Changes in Your Financial Goals

It’s normal to have significant changes in your goals as you grow.

Some people might start prioritizing building wealth and luxuries. This makes universal life insurance a more valuable product, since it can accumulate cash value and even use indexed rates for better growth.

Those who want to invest in philanthropy can use special charitable trusts and life insurance policies to fund their charities.

Legacy planning that involves passing on your wealth for generations can benefit from tax-advantaged life insurance plans and dynasty trusts.

New investments or retirement timelines can also impact what term life or permanent life suits you best.

Annual or Biannual Check-Ins

Making revisiting your life insurance routine is the best way to prevent oversights, since it will be on your mind. While it’s recommended to do a quick review every year, most people find it more reasonable to take a longer look every 3 to 5 years. This prevents outdated policies or lapse risks.

Professional Review Options

Consulting with a professional is an excellent idea if you have a complex estate or financial situation. Experts who can provide valuable individualized guidance include:

• Financial advisor
• Insurance agent
• Estate planner
• Estate attorney

By getting expert assistance on policy performance and riders can make a big difference. If you want the best cash value growth or worry about tax compliance, a professional review can help you sort out your estate plan and life insurance choices.

Conclusion: Make Policy Reviews Part of Your Financial Routine

Life insurance works best when it’s reviewed habitually and updated during major life events. A lapse in coverage is devastating, and nobody wants their loved ones to have to be the one to realize that is the case.

Update your life insurance regularly, or find the best life insurance for your needs today.