Updated: November 2016
Purchasing a life insurance policy may help protect your family's financial future if you pass away. While long-term planning is important, a life insurance policy you bought five or 10 years ago may no longer offer the right amount of benefits for your current situation. That's why the Insurance Information Institute (III) recommends reassessing your insurance needs once a year.
You should also consider reviewing your policy whenever there's a major change in your life. From new babies to job changes to retirement, here are some situations that may prompt you to adjust your life insurance coverage.
Whether you're just starting out on your own or you're nearing retirement, life insurance may help provide a financial safety net for your loved ones. As your life changes, the III suggests taking another look at your policy when you:
- Buy or refinance a home
- Become responsible for a loved one's finances
- Receive an inheritance
These milestones often mean a higher income or increased debt, which means you may also want to increase your policy's death benefit, says the National Association of Insurance Commissioners
(NAIC). Other life changes, such as paying off your mortgage or retiring, may actually decrease your need for life insurance coverage.
If you pass away, the benefits of a life insurance policy may help your family meet regular expenses and plan for future expenses, such as your child's college tuition. When your family changes, it may affect what your children would need if you were no longer there to support them. You may want to increase your coverage when you add another family member, says the NAIC. However, you may not need as much life insurance coverage once the kids are out on their own.
You may want to consider raising or lowering your life insurance policy's coverage when:
- You get married or divorced
- You have a baby
- Your children finish college
- Your children become financially independent
The benefits of your life insurance policy may help replace your income if you pass away, the III says. It's common for your salary to change throughout your career, and your family's lifestyle may change along with it. You might want to consider updating your life insurance coverage to keep up with your current income, as this could help your loved ones maintain their current lifestyle.
Think about adjusting your policy when:
- Your salary changes
- You start or sell a business
- You or your spouse change jobs
If you're self-employed or own a business
, you may also want to consider how your business-related expenses would affect your family if you pass away.
If you've had any recent changes in your life, your local agent can help explain your current coverage so you can adjust your life insurance policy.