Your life insurance needs may change without you even realizing it. You may have purchased life insurance years ago, and never gave it a second thought. Or, you may not have life insurance at all–and now you need it. When your life circumstances change, you have a fresh opportunity to make sure the people you love are protected.
1. You’re tying the knot
When you were single, you may not have thought much about life insurance. But now that you’re getting married, someone else may be depending on your income. If one of you should die, the other spouse may need to rely on life insurance benefits to meet expenses and pay off debts.
The amount of life insurance coverage you need depends on your income, your debts and assets, your financial goals, and other personal factors. Even if you have some low-cost life insurance through work, this may not be enough. To be adequately protected, you may each need to buy life insurance policies from a private insurer. The cost of an individual policy will be based on your age and health, the amount of coverage you buy, the type of policy (e.g., cash value or term insurance), and other variables.
2. You’ve become a parent
When you become a parent, it’s time to take another look at your life insurance needs because your family’s financial security is at stake. Married, single, and stay-at-home parents all need life insurance. Life insurance proceeds can help your family meet both their current expenses (such as a mortgage, child care, or car payments) and future expenses (such as a child’s college education). Even if you already have life insurance, it’s time to review your policy limits and beneficiary designations.
3. You’re contemplating divorce
During a divorce, you’ll have a number of pressing financial issues to address. Make sure that one of these is life insurance. You’ll want to think about what protection you need, and what protection your children (if any) will need in the future. For example, if you’ll be paying or receiving child support, you may want to use life insurance to ensure continuation of those payments. During a divorce, you may also need to negotiate ownership of life insurance policies. Life insurance ownership and obligations may be addressed in your divorce settlement, and state laws vary, so ask your attorney for advice and information. Finally, you’ll want to evaluate your own life insurance needs to make sure your family is protected in the event of your death.
4. Your children have left the nest
If having children was the reason you originally purchased life insurance, you may feel that you no longer need coverage once your children are living on their own. But this isn’t necessarily the case. Before making any decision, take a look at the types and amounts of life insurance you have to make sure your spouse is protected (if you’re married). And keep in mind that life insurance can still be an important tool to help you transfer wealth to the next generation–your children and any future grandchildren.
5. You’re ready to retire
As you prepare to leave the workforce, you should revisit your need for life insurance. You may find that you can do without life insurance now if you’ve paid off all of your debts and achieved financial security. But if you’re like some retirees, your financial picture may not be so rosy. You may still be saddled with mortgage payments, tuition bills, and other obligations. You may also need protection if you haven’t accumulated sufficient assets to provide for your family. Or maybe you’re looking for a way to pay your estate tax bill or leave something to your family members or to charity. You may need to keep some of your life insurance in force or even buy a different type of coverage.
6. Your health has changed
If your health declines, how will it affect your life insurance? A common worry is that if your health changes, your life insurance coverage will end if your insurer finds out. But if you’ve been paying your premiums, changes to your health will not matter. In fact, you should take a closer look at your life insurance policy to find out if it offers any accelerated (living) benefits that you can access in the event of a serious or long-term illness.
It’s also possible that you’ll be able to buy additional life insurance if you need it, especially if you purchase group insurance through your employer during an open enrollment period. Purchasing an individual policy may be possible, but more difficult and more expensive.
Of course, it’s also possible that your health has changed for the better. For example, perhaps you’ve stopped smoking or lost a significant amount of weight. If so, you may want to request a reevaluation of your life insurance premium–ask your insurer for more information.