Just because you’ve had your life insurance application accepted and your policy is officially in force doesn’t mean you can forget about your life insurance coverage. You bought life insurance to cover your liabilities, and sometimes those liabilities change!
Take Hypothetical Jim, for example. Hypothetical Jim bought a policy for $500,000 three years ago, enough to cover his mortgage, some outstanding debt, and his daughter’s college education. Since then, his wife gave birth to twin boys. Besides all of the other things he has to worry about, Hypothetical Jim needs to think about the twins’ college educations, and how they would be able to afford college if he died unexpectedly.
It’s time for Hypothetical Jim to review his life insurance!
To make it more explicit: you’ll want to review your life insurance coverage every time you have a major life event that changes your financial liabilities. That means things like new children, paying off your mortgage, getting a new mortgage, your kid graduating college, a divorce, paying off student loans, and other major changes.
Note that not all of those events lead to you needing more life insurance – in fact, you may be able to save money by replacing your current life insurance policy with a new, smaller policy. If you don’t have a huge mortgage, why pay extra to cover it?
But here’s a prediction: you’ll probably forget to do that. You think Hypothetical Jim remembered to review his life insurance when he had two crying baby boys in his arms? The last thing you’ll want to do during those super busy times is go over your life insurance coverage – assuming you even remember you need to do it!
So instead of trying to remember to review your coverage during busy and turbulent life changes, just set up an annual reminder to review your life insurance coverage instead. You could do this during tax season – you have to look at all of your financial documents anyway, so why not kill two birds with one stone?
If you haven’t had any major financial changes in the last year, that little meeting with yourself will go by really quickly! But if your financial liabilities have changed, this yearly review will allow you to take stock and decide if you need to get more life insurance coverage.
Hypothetical Jim reviews his life insurance coverage every year at tax season, and while he’s only ever decided to change his coverage once (after the twins were born), he’s happy that he implemented an annual review. And while Jim can only ever be hypothetically happy, we think you be actually glad that you reviewed your coverage.
Need help re-calculating your financial liabilities? Our life insurance calculator will always be here.
Image: Marc Bédard Peluchat