Why Should You Make Reviewing Your Term Life Insurance a Top Priority?

Life insurance can be a critical component of your financial plan, helping to provide peace of mind and financial security for your loved ones in the event of your death. Regularly reviewing your term life insurance policy helps ensure that it continues to meet your needs and provides adequate financial protection.

Some term life insurance policy changes might not be possible after the policy has been issued, while others might require underwriting approval. It's important to review your policy documents and speak with your insurance agent or provider to understand the specific options and procedures available to you.

Here, we’ll guide you through seven helpful elements to review.

1. Life Changes

Life is dynamic, and significant changes can affect your life insurance needs. Here are some life events that may prompt a review of your policy:

Marriage or Divorce

Getting married often means merging finances and responsibilities. Your spouse may rely on your income, making it essential to ensure they are adequately protected. Conversely, a divorce might necessitate changing your beneficiaries or adjusting your coverage.

Birth or Adoption of a Child

Welcoming a child into your family is a joyous occasion that also brings new financial responsibilities. Ensuring your term life insurance policy provides enough coverage to support your child's upbringing and education is crucial.

Career Changes

A new job, promotion, or starting your own business can significantly impact your financial situation. Whether your income has increased or decreased, you may want your life insurance policy to reflect your current earning potential and financial obligations.

Home Purchase

Buying a home is a major financial commitment. If you have a mortgage, you may want to ensure your life insurance policy can cover the outstanding loan amount, so your family isn’t burdened with this debt in case of the unexpected.

2. Policy Type and Coverage Amount

When reviewing your life insurance policy, consider whether the type of policy and the coverage amount still meet your needs.

Term vs. Permanent Life Insurance

Term life insurance provides coverage for a specific period, typically 10, 20, or 30 years, and is often more affordable. Permanent life insurance, which includes whole and universal life policies, offers lifelong coverage and a cash value component. As your financial situation evolves, you may find that one type of policy is more suitable than the other. Speak with a life insurance agent to learn more about these policy types and which may be right for you.

Adequate Coverage

You may want your coverage amount to be sufficient to help replace your income, pay off debts, cover living expenses, and provide for potential future needs like college tuition for your children. A common rule of thumb is to have coverage that is 10-15 times your annual income, but individual needs may vary. Work with your life insurance agent to help determine adequate coverage levels.

3. Beneficiary Designations

Reviewing your beneficiaries is vital to ensure your life insurance benefits go to the right people. Life events such as marriage, divorce, the birth of a child, or the death of a beneficiary should prompt an update to your designations. It’s also wise to name contingent beneficiaries as a backup.

4. Policy Riders and Additional Coverage

Life insurance policies may include optional riders that can provide additional benefits or customization to current policy terms. Some common riders include:

Waiver of Premium: This rider waives your premium payments if you become disabled and are unable to work.

Accelerated Death Benefit: This rider allows you to access a portion of your death benefit if you are diagnosed with a terminal illness.

Guaranteed Insurability: This rider gives you the option to purchase additional coverage at specified times without undergoing a medical exam.

Reviewing your policy can help you determine if you need to add or update any riders based on your current situation.

5. Financial Health of the Insurer

Ensure that your insurer is financially stable by doing a bit of research. Look up the financial strength ratings of your insurance provider through reputable rating agencies such as A.M. Best, Moody's, Standard & Poor's, or Fitch. These ratings reflect the insurer's ability to meet its policyholder obligations. Speak with an insurance professional who can provide personalized advice based on your specific situation and help you navigate the complexities of switching providers if necessary.

6. Term Life Insurance Market

The term life insurance market is competitive, and new products with enhanced benefits or lower premiums may be introduced. Comparing your current policy with new options can help you find more appropriate coverage or save money. However, you should consult with a financial advisor or insurance professional to understand the implications of replacing your existing life insurance policy.

7. Professional Guidance

Navigating through the life insurance policy process can be complex, and your needs can change over time. Working with a financial advisor or insurance agent can help you navigate the review process. They can provide personalized recommendations based on your unique situation and help you make informed decisions. And if you're interested, take a little time to explore how life insurance works.