There are three big events that typically prompt people to purchase life insurance: Marriage, buying a home, and having children. All three are important life milestones, leading people to think about and plan for their future. It’s really no surprise that these events spark a desire to put some financial protection in place, just in case the worst happens.
But there are other times in life when it may be time to reconsider your life insurance needs. Whether you’ve made changes at work, additions at home or you are starting to downsize, the amount of life insurance cover you hold may need an update.
Here are five times to consider making changes to your policy.
How to Know It’s Time to Review Life Insurance Policy
#1. Getting a Promotion
Making gains in your career is a big occasion. Your top priority may be to celebrate (and rightly so!), but after you’ve toasted to your success, it may be time to review your life insurance policy.
If you purchased when you first started your career, the lifestyle you lead then may be vastly different to what it is now. People tend to acquire assets as they climb the career ladder, often trading up for a better car or house, or investing in multiple properties.
The benefit level chosen when you were younger may no longer be enough to make a sizable dent in the mortgage or car payment if you were no longer around or able to provide for your family. It’s also likely that the insurance cover provided with your superannuation may no longer be enough to match your changing salary and lifestyle.
Take a moment to review your policy, and decide if the cover provided is still enough. You may want your family to be able to completely pay off the mortgage or maintain the standard of living you’ve worked hard to give them. Whatever your goals, consider updating your life insurance to match.
#2. Renovating the House
Increasing housing prices in Australia are leading more people to choose renovations over moving. Rather than changing neighbourhoods in search of a better floorplan, families are instead opting to upgrade their existing homes. If you are one of such, we recommend you read this step-by-step guide to filing a home insurance claim, so as to prepare yourself if anything goes wrong.
A home remodel can add value to a property that could in turn change your life insurance needs. Paying off a major renovation often takes time, whether it was funded through refinancing an existing mortgage, taking out a personal loan or using a credit card. This may mean increasing the benefit amount of your policy to allow your family to pay off or down the debt, if the worst were to happen to you.
#3. When the Kids Start High School
We’ve mentioned before that starting a family is a big reason for many to take out life insurance. The desire to help protect their family’s financial future leads new parents to purchase what may be their first policy. But as your children grow, you may want to reassess the cover you have. This is why most insurance agents recommend term life insurance for parents.
Parents often consider the costs of a child’s education when selecting the amount of life insurance cover they take out. Paying for school fees or setting aside money for university are commonly taken into account.
However, if you purchased when your children were young (or before you had them), you may have simply taken your best guess at how much money would be needed to cover school costs. Once the kids reach high school age, it may be a good idea to review this number.
Now that you’ve selected the school or schools your children will attend, you can better estimate the cost of their education. You may also have a better idea of whether your children are likely to attend university, and which ones they’re working towards. You might find that more life insurance cover is needed to help pay these fees, should the unthinkable occur.
#4. Taking a Career Pause
There may be times in life when you or your partner need to step away from the career ladder. Whether it’s welcoming a new baby or taking care of an aging relative, a career pause is another time when you may want to review your insurance needs.
The work done by stay-at-home parents and unpaid caregivers is often overlooked and undervalued. Not bringing home a paycheck doesn’t mean you aren’t contributing financially to the household.
It may sound like a good idea to cancel life insurance cover on the person staying home to save money, but this move could leave your family open to financial hardship.
If you were no longer around to provide care, do the housekeeping, cook meals or the dozens of other jobs around the house, your family may need to hire help to keep the house running smoothly.
Before removing yourself or stay-at-home partner from your life insurance policy, consider how their loss might affect the household finances. It may make sense to temporarily to lower the cover amount for this person whilst their career is on pause or until you’ve fully worked out the new household budget.
#5. Thinking about Retirement
Approaching retirement may mean scaling back on expenses to maximise your savings. Reviewing your life insurance could help you meet these pre-retirement goals.
By the time you reach retirement age, you may have paid down or completely eliminated large debts such as the mortgage or car loans. Lowering the benefit on your life insurance policy might make sense if these debts are no longer an issue. However, you may decide that the benefit payout could be put towards another use, such as paying for a grandchild’s education, supplementing an inheritance for a family member, or simply used to pay for your funeral. Reviewing your retirement plan and financial situation can help you decide if a life insurance policy still makes sense at this stage of your life.
Life insurance can be an important part of many people’s financial plan. Set aside some time to regularly review your policy. Evaluating how well it fits your changing lifestyle can help you keep your family and the life you’re building together protected.