Life insurance can be very effective in providing financial insulation, security and peace of mind to those who elect to safeguard their loved ones from the financial travesty that can result from an unexpected tragedy. It is important to understand that just because you’ve implemented this layer of financial protection by securing an insurance policy, does not mean that you can lock it away for decades and expect it to remain optimal for your ever-changing financial life.
You may have full faith and confidence in your current insurance broker and the policy they helped you secure based on your facts and circumstances at the time. It is very important to ask yourself and identify any impactful life changes that may have occurred since you had this insurance policy written. As time goes on, it is likely that your financial facts and circumstances have changed. Based on these changes, it is important to review your own insurance coverage on a regular basis to make sure that it is still relevant. (For more, see: Understanding Different Types of Life Insurance.)
Critical Financial Events
There are many life events, more formally known as critical financial events, which can drastically change one’s financial life and ultimately change their insurance goals and needs. Some of these events are planned while others are not. Major events should prompt an individual to have their insurance reviewed to confirm its relevance and effectiveness in the context your life at that time.
One important component to consider when reviewing your insurance are your beneficiary designations. The primary beneficiary that you had once designated on your policy may no longer be the individual you want to receive the death benefit upon your demise. It is crucial that you monitor this on a regular basis. The last thing you want to happen is for an obsolete beneficiary to receive a death benefit that you intended for someone else.
For example, consider a married individual who has two kids and had secured a life insurance policy to financially safeguard his family in the event of his or her untimely death. Let’s assume that this individual had originally designated their spouse as the primary beneficiary and the two kids as the contingent beneficiaries. As time passes, their marriage unfortunately declines and happens to result in a bitter divorce. A critical financial event such as this would be the optimal time to review one’s life insurance policy. There is a high likelihood that this individual would want to remove their spouse, soon to be ex, as primary beneficiary and designate the two children as the new primary beneficiaries.
Reduction in insurance policy premiums is another motivation for a regular policy review. Over the last 20 years mortality rates have risen, making insurance premiums decline. This could provide you with the opportunity to reduce your insurance costs over time. A quick and simple policy review can ultimately save you money over time. Such a review may also allow you to determine whether or not your current coverage is still appropriate, as you may want to increase or decrease your coverage amount depending on your changing facts and circumstances.
Regular reviews of your life insurance coverage can be a very effective strategy with regards to monitoring your policy premium costs as well as the scope of your coverage. Even the most minor changes and adjustments to your insurance coverage can have monumental impacts on yours, and your family’s lives down the road. (For more, see: Life Insurance: Putting a Price on Peace of Mind.)
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.