Topic 2: Keeping your life insurance up to date

The people you named as your beneficiaries when you began that life insurance policy may not be the ones you want to have listed now.

Any number of life changes can encourage a change in beneficiaries. You might have a falling out with someone, but more often it’s a joyous occasion, like marriage or the birth of a child. When these sorts of life events happen, it’s always wise to review and update life insurance policies. Let’s walk through some of the most common significant life events that can affect your life insurance in this way.

Times to update life insurance

One of the most important times you should update your life insurance is when you make the big commitment to get married. When starting out, often you don’t have as much income or expenses to be concerned about, but you want to plan ahead for the future. You and your new spouse may only be making a little over minimum wage now, but you will probably be making more later in life. This means a different standard of living and a required amount of money needed to maintain your lifestyle. If a spouse dies, life for the other spouse goes on and responsibilities remain—mortgages, transportation, insurance, education and college, maybe a business, and more. With life insurance though, a spouse could continue on as though the household still has the same income as if the other were living. Not only should you look at the coverage limits, you also want to ensure you update your spouse as a beneficiary so you know they’d receive the money.

So you bought your life policy when you were a bright, young newlywed, head over heels in love, and had your first baby. Eventually, you got a divorce and got remarried. You don’t want to have a situation where your one single policy pays out to your ex because you never changed the beneficiary and updated the policy. If you have the greatest ex in the world, the ex may be understanding and spread the benefits, but it’s better to be safe than sorry.

Be sure to keep your agent abreast of any major life changes, including things like divorce or changing beneficiaries. There’s no need to feel embarrassed; they’re there to help you plan for these life changes, not judge you.

Having a baby
Having a baby is an amazing experience. Perhaps that’s what prompted you to buy life insurance to begin with. You’re enthralled with your “mini me” and want to be sure there’s future protection.

Sometimes another child comes along and by then life is so hectic life insurance is the last thing on your mind. However, this is exactly when you should contact your insurer to update the changes. Your policy needs to be updated with your new child’s information and review your coverage to be sure it’s still enough.

Always update your policy for subsequent children if you decide to have more.

This is also a good time to purchase life insurance on your child as well. Your agent can show you all the options and benefits, and it’s typically a very inexpensive policy.

The right policy can convert into your adult child’s life policy, and protect them should they have the misfortune of developing a childhood disease that makes them ineligible for life insurance later in life. They could even borrow against the value of a whole life policy for college.

Buying a house
Homeownership is an exciting rite of passage that can come with many complications. The chances are that you’ve taken on a mortgage along with that new house. While there’s nothing wrong with mortgages—they’re the most common way to buy homes—they do present an extra complication in the case of your death.

If you or your spouse die, and a significant portion of the family income passes as well, then you may find the mortgage payments on your house to be unpayable. Therefore, some people choose to increase the size of their life insurance policy or explore mortgage insurance once they become homeowners.

Another thing to consider is the person you have listed as your beneficiary. Perhaps you and your spouse didn’t have high expenses and didn’t list each other previously. If not, now is the time to change that. You’ll want to make sure whatever payout your policy provides is available to your spouse to help with the mortgage payments. 

Starting a business
Starting a new business is a risky endeavor, but it can be an incredibly rewarding one. When you create a new business it is an excellent time to review your life insurance policy. You’ll want to make sure that it provides sufficient coverage and that your beneficiaries are in order.

It’s not uncommon when starting a new business to take on a considerable amount of debt. Also, these endeavors tend to cut back on income, at least in the short term. Working on the new business often means no longer spending as many hours on your previous employment. These two factors mean that during the early stages of a new business, your family can be especially vulnerable if you die.

At this point, when bills are more common than paychecks, making sure that your life insurance policy has sufficient coverage is essential. The general idea is to offset the debt of the business endeavor and the loss of income as much as possible.  

The takeaway
It’s essential to keep your life insurance policy up to date.
Significant life events are an excellent time to review your life insurance policy.

The person you want as beneficiary can change over the years.

The size of policy you need can change due to certain life events.

Your life insurance policy is only as good as you make it. If you don’t take the time to update your life insurance after significant life changes, you might end up with a policy that doesn’t meet your needs. By checking annually to make sure that your policy size and beneficiary list are what you want, you can keep your policy tailored to your specifications. Whether this means increasing the size to offset business debt or changing the beneficiaries to include a new grandkid, the goal is to have your life insurance compliment your life.

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