I love financial milestones. Whether they make us feel amazing (you paid off all of your student loan debt!) or they’re a little bittersweet (you just signed a 30-year mortgage… yay?), financial milestones always mean one thing: you just accomplished something.
Actually, financial milestones mean two things: you just accomplished something and you need to reevaluate your life insurance situation. I know, I know – shopping for life insurance is hardly the most thrilling experience in the world, and if you’re anything like some of our customers, it means a thorough and careful research process.
Getting term life insurance quotes after a major financial milestone doesn’t have to be a pain in the neck, however – after you ask yourself two key questions, you should be well prepared for the shopping and application process.
This is a highly personal question that depends on how much life insurance you already have and how your specific financial milestone affects that. Note that a financial milestone doesn’t necessarily mean that you have to buy more life insurance. Paying off debt, like your mortgage or a student loan, can mean that you’d be better served by reducing the amount of term life insurance you have. On the other hand, having a kid or two means you definitely need more life insurance.
In general, you can categorize financial milestones in two major ways:
Does the milestone reduce my debt or overall financial obligations? Then you need less life insurance.
Does the milestone increase your debt or overall financial obligations? Then you need more life insurance.
For help figuring out the exact amount you should increase or decrease your life insurance coverage by, you can check out our guide to calculating your life insurance coverage or visit our life insurance coverage calculator.
When it comes time to actually reduce or increase your life insurance coverage, you basically have three options:
Talk to your life insurance company about increasing or reducing the coverage on your current policy. (This option may not be available to you, or you may be limited in the amount of times you can do this. Call your insurer for more details.)
Buy a new life insurance policy that has the new coverage amount you need and cancel the old policy.
Purchase an additional life insurance policy in order to increase your coverage.
The first option is the easiest, assuming your life insurer allows you to change your coverage amount. Some life insurers may limit you to changing your coverage amount once per year, or just one time during your entire term.You may also be leaving money on the table by not shopping around for an entirely new life insurance policy (option 2 in the list above). Life insurance companies update their rate tables (i.e. the spreadsheets they use to figure out how much you’ll pay) every year, and it’s possible that you could save money by shopping around at a new company.
You could end up saving money even if you need to increase your coverage – even if your monthly bill is actually larger than it was before, you could pay less than you would if you just called your insurer to increase your coverage. Whatever you do, however, don’t cancel your old policy until your new policy is officially "in force" – i.e. actually covering you.
Even if you think option one will be easier, you should shop around and see what your life insurance quotes are. You could end up saving big.
The third option, purchasing an additional life insurance policy, is only available to customers who need to increase their coverage. If you need to increase your coverage, but buying an entirely new policy would be too expensive as your rate has increased in the intervening years, buying a smaller, additional life insurance policy can be more cost-effective.
You can also choose a policy that has a different term length than your original policy – for example, if you just signed a new 30-year mortgage, you’ll want to make sure your new policy’s term length will actually cover the full length of that mortgage.
If you decide to buy additional life insurance coverage, or you want to shop around and see what your quotes would be for an entirely new life insurance policy, you should take a look at our life insurance quote comparison tool. We can show you quotes from over a dozen life insurance companies, which probably is more than your local neighborhood broker could ever dream of.
Buying a new or additional life insurance policy is very similar – actually, exactly the same – as buying your first life insurance policy. You don’t get to skip the medical exam just because you bought life insurance in the past five years, for example. However, now that you know the drill, you should be even better prepared for the process.
Our life insurance advisors can help through every step of the way – or, if you prefer, take a hands-off approach and let you do your thing. Either way, they’ll make sure your application goes through smoothly, and if it doesn’t, they’ll help you plan your next move.
Get essential money news & money moves with the Easy Money newsletter.
Free in your inbox each Friday.