When Should You Update Your Life Insurance Policy?
We buy life insurance to protect our loved ones financially. But does your current life insurance policy actually do that?
You see, life insurance isn’t a policy you just buy and forget about. Temporary or term life insurance policies can last 10-30 years, while permanent life insurance policies last a lifetime.
Let’s face it, your needs and those of your loved ones are unlikely to remain the same for such long periods. Major life events, financial ups and downs, and increasing family responsibilities will all influence the financial protection your dependents need.
Coverage that made sense a few years ago may no longer reflect current income, debt, family responsibilities, or any long-term financial plans.
That’s why at McIver Insurance Inc., we recommend that our clients review and update their life insurance policies every two years or at the very least, after major life events. This practice helps ensure your coverage reflects the needs of your dependents year after year.
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When Does Updating Your Life Insurance Make Sense?
There are many reasons for updating a life insurance policy. Here are some of the most common ones:
- Adding or removing a beneficiary
- Reviewing and adjusting riders
- Improvements in health (compared to when you bought the policy)
- Significant financial changes in income, debt, or employment
- Coverage adjustments after major life milestones like buying a house, having a child, or approaching retirement
- Renewing or converting an expiring term policy
Don’t forget, your life insurance policy is tied to real-world responsibilities, which can shift over time. Reviewing and updating your policy annually or after major life events ensures that the original purpose of your coverage still matches current needs.
6 Major Life Events That Require a Life Insurance Policy Update
Major life events can warrant an immediate reassessment and change in life insurance policy coverage. In most cases, beneficiaries have to be updated, and coverage amounts have to be adjusted to match different life stages.
Here are six major life events that warrant an update on your existing life insurance policy:
Marriage
Marriage comes with its own set of financial responsibilities. Once you get married, your policy will have to be updated to include your partner as a beneficiary. This would also be a great time to review and reassess your policy to ensure the coverage amount reflects your new financial responsibilities.
Divorce/Death
A divorce or the death of a partner will warrant an update of beneficiaries on a life insurance policy to avoid unintended payouts and/or legal disputes.
Birth or Adoption of a Child
A child cannot be added to an insurance policy as a beneficiary until they reach the legal age of majority, which is 18 or 19, depending on the province you live in. However, your life insurance policy will still have to be updated at the time of birth or after adoption to include a custodian.
The custodian, whether an entity or a person, will collect the payout on your child’s behalf (in the event of death) and manage those funds until your child reaches legal age. You should also reassess coverage amounts after having a child to ensure things like future education costs are covered.
Buying a Home (Taking on Debt)
Buying a home is exciting, but it also means taking on considerable long-term debt. This often necessitates higher insurance coverage, as your family would need a larger payout to settle mortgage payments or other large debts if you were to pass away.
Job Changes/Changes in Income
A job change could mean losing out on employer-provided life insurance or being put into a group benefits plan at your new job that doesn’t match your needs. You may have to consider an individual life insurance policy in this case.
Changes in income will also warrant an update. If your income increases, so should your coverage amount and vice versa.
Retirement
As you approach retirement, a lot of things are likely to change. Your income may no longer be the same, you may not have as many debts, and your children will likely be approaching adulthood and financial independence if they aren’t already there. Reviewing your policy during this stage can ensure your premiums remain manageable and your coverage still supports your long-term financial goals.
Instances When Reviewing Your Life Insurance Matters!
While updates after major life events can help keep your life insurance policy current and viable, there are instances that may require immediate changes to policy terms.
During Policy Renewals
This usually occurs in cases where your term policy is approaching expiration or your coverage no longer meets your long-term goals.
You have a few choices here. Either renew your term policy for another 10-30 years, let the policy expire, or convert the policy to “whole life insurance” or permanent life insurance.
Most insurance providers offer policy renewal terms that allow for term policies to be converted to permanent ones without the need for medical exams. This can be quite advantageous depending on your priorities, budget, and long-term goals.
Permanent life insurance offers lifelong protection and a guaranteed death benefit. It also has a cash value component that grows with time and can be withdrawn largely tax-free in cases of emergencies or upon retirement.
When You Feel Current Coverage Isn’t Sufficient
You might also want to consider reviewing your policy if you have employer-based insurance or believe that additional riders could provide more comprehensive coverage.
Group benefit plans provided by employers often provide the bare minimum in terms of coverage. For many, it can be inadequate. In this case, you might want to consider an individual life insurance policy that provides more robust coverage through riders like accelerated death benefit, accidental death benefit, waiver of premium, return of premium rider, and more.
During Financial Changes
In the event of rising costs or changes in the household budget, keeping up with premium payments can get challenging. Reviewing your policy to see if there is any way to make those premiums cheaper or easier to manage is recommended before things get out of hand.
On the other hand, if your income has gone up, and your long-term goals have changed, you likely want stronger protection. Riders or living benefit features can offer that added protection, be it at a higher cost.
Tailoring Life Insurance Policies to Protect Those You Love!
At McIver Insurance Inc., we believe that life insurance policies should grow and change as your life does. Major life events and changing long-term goals can make a policy that once felt right mostly redundant.
Don’t let that happen to you. Update your life insurance policy regularly so that it continues to reflect the people, responsibilities, and plans that matter to you most.
Want further information or guidance? Call Pat at 1-902-220-3279 or click here to book a FREE meeting.
FAQs
When should I update my life insurance policy?
Ideally, after major life changes such as marriage, divorce, having children, buying a home, changing jobs, or approaching retirement.
How often should I review my life insurance coverage?
Ideally, after every two years, or sooner if there has been a major financial or family change.
Do I need to update my beneficiaries after marriage or divorce?
Yes. Beneficiary details should be reviewed after major family changes to make sure the policy reflects your current wishes.
Can inflation affect whether my life insurance is still enough?
Yes. Over time, inflation can reduce the real value of a death benefit, especially if the policy has not been reviewed in many years.
Can I update my life insurance without replacing the policy?
In some cases, yes. Updates may involve changing beneficiaries, reviewing riders, or adjusting coverage, depending on the policy.
