Are you one of the 62% of Americans that has life insurance coverage? If you answered 'yes,' congratulations and job well done! You have taken a proactive step in securing the future of your loved ones in the event of your untimely death. There are many misconceptions about life insurance, with cost being one of the biggest. However, another common misconception about life insurance that many people have is that it is a "get it and forget it" purchase.
Life insurance is merely one piece of your financial portfolio, and just like your retirement plan and estate plan, the amount and type of life insurance coverage that you have should be reviewed periodically. Here are a few examples of when you may need to adjust your life insurance policy.
1. Your Financial Situation Changes
Whether your income increases because of a job change or promotion, or decreases because of a job change, a change in your financial situation should trigger a review of your life insurance coverage. In many cases, a job promotion changes a family's lifestyle—they may purchase a larger home, decide to have more children, or purchase a new vehicle. Just like an emergency fund, taking on more debt or liabilities, means that your life insurance coverage should increase as well. Likewise, a job change to a lesser paying position (although you may find it much more rewarding!) may mean that you can no longer afford whole life premiums and may need to consider switching your policy from whole- to term-life coverage, depending upon your age and medical condition.
2. Major Life Events
First comes love, then comes marriage, then comes baby in a baby carriage...then comes reevaluating your life insurance coverage! Any time you experience a major life event such as a marriage, divorce, or the birth or adoption of a child, you should consider reviewing your life insurance coverage. Naturally, when you experience major life events that increase your financial burden such as a growing family or a home purchase, your financial needs increase, making it critical that you increase your coverage amounts. Likewise, other life events can trigger less financial need, and ultimately, less life insurance coverage needed—such as paying off a mortgage, getting a divorce, or your children no longer needing (even though they may still want) your financial support.
If you're nearing retirement age, it is a good time to review your life insurance coverage and current needs. In the best-case scenario, your retirement portfolio is in good shape and you have more than enough saved to meet your needs for the duration of your life, and provide for your loved ones should you die prematurely. But if things didn't go as planned—and they often don't—you may still need some form of life insurance to protect your loved one's needs and accomplish the goals laid out in front of you.
A financial plan and requirements will vary from person-to-person, so it's best to discuss your unique situation with a producer. The three situations listed above are opportune times to meet with your financial advisor or agent to discuss your individual coverage needs.
Related Reading: 6 Things to Consider When Choosing the Right Type of Life Insurance