You should regularly consider reviewing your life insurance policy to determine if the coverage in your policy is still appropriate for your situation.
You purchase a life insurance policy to protect your family’s financial future and to make sure everything is taken care of for your loved ones in case of your sudden death. But life doesn’t sit still, does it?
A lot of people think that once they buy a life insurance policy they can “buy it and forget it” and doesn’t need to address their future insurance needs. However, a policy that you may have bought 5 years or 10 years ago won’t provide you with the right amount of benefits for your current needs. Experts suggest that you should regularly consider reviewing your life insurance policy to determine if the coverage in your policy is still appropriate for your situation. In fact, most financial advisors recommend reviewing your life insurance policy annually. This becomes important for one simple reason – life changes frequently.
Your policy should change along with your life
Your needs radically change as you grow. It becomes very important to change your life insurance policy to some degree with every major change in your life. For most people, changes are frequent and therefore it’s advisable to reassess your life insurance coverage on a regular basis as you would do for your other policies.
If it has been a while since you have reviewed your policy, there’s nothing like doing it today. Here are some of the major reasons which are important enough to make you review your policy.
# When your family grows
Getting married or having a child is one the most important changes that triggers the review of your life insurance policy. Whether you’re having your first child or second, a new addition in the family is one of the biggest changes you can encounter. Considering the change, most of the people will add enough life insurance so that if you die tomorrow, there would be enough funds to provide for your child through their college years. Yet, there are still certain people who continue to live with their existing policy without reviewing it.
On an average, the approximate cost of raising a child from the child’s birth until he turns 21 years’ old comes around Rs 20-25 lakh. Will you be able to provide this to your child if you can’t be there? As your family grows, it’s a probably a good idea to increase your overall amount of life insurance. If you feel that your current sum assured is not enough to meet your family’s needs, you can always enhance the sum assured by paying extra premium under the Life-Stage protection feature.
# You have a new mortgage
Buying your own home may be your family’s largest asset and at the same time the largest financial responsibility. It is suggested to purchase a term life insurance policy for at least the same or more amount as of your mortgage. Then, if you pass away during the ‘term’ when the policy is in force, they can use the money to pay off the mortgage. For instance, if you have a life insurance policy with a death benefit of Rs 1 crore and you buy a new home with a mortgage of Rs 3 crore, you will need to update your life insurance policy. Why? Because taking a mortgage is a huge obligation. Upon your death the responsibility of home loan will be on your spouse or other family members. Updating the sum assured for the same amount as of your mortgage will ensure that your family will be debt-free in the event of your death.
# When your career changes
Over the period of time your income changes for better and it is usually accompanied by changes in financial status of an individual. Whether you get a promotion or hike in salary, all of these call for new financial decisions. Whenever you switch your job or experience a hike in your salary, you must review your life insurance policy as this could help your loved ones to maintain their current lifestyle.
# Changes in beneficiaries
Beneficiaries change as your circumstances change. Marriage could mean updating your policy to add your spouse as a beneficiary. In contrast, a divorce may require withdrawing a former spouse. It is important to review your beneficiaries regularly as well to make sure you’ve got the right people covered under your policy. Failing to do the same can have some devastating effects and may leave your death benefit in the wrong hands.
(By Santosh Agarwal, Chief Business Officer-Life Insurance, Policybazaar.com)