As you change, so do your life insurance needs. For this reason, it is a good idea to update your life insurance policy from time to time, to ensure it provides adequate protection for the people who depend on you.
Certain life events may be the catalyst for you to take another look at your existing life insurance policy. In this post, we show you how you can update your coverage to protect a new business, home, or family member.
Continue reading to find out more.
You'll learn:
When to update your life insurance cover
Life Events
The specifics of your life insurance policy are not set in stone. How long the policy lasts, and how much will it pay, and to whom; are details you can change as your life changes.
While you may review your life insurance policy any time you want, certain life events usually call for an update of life insurance needs. These events include:
- Marriage
- Divorce
- Birth of a child
- Loss of a loved one
Life insurance helps your dependents live comfortably after you are gone. If the number of people who depend on you financially changes, it is a good idea to reassess your coverage amount.
A good example is the birth of your first child. When you start a family, you are no longer responsible just for yourself. You must also plan for the future of your newborn. And that means asking yourself uncomfortable questions like:
- If something were to happen to me, will the present coverage amount be enough to help my spouse pay off everyday living expenses and the mortgage, as well as cover childcare costs and fund my child’s education?
- How much life insurance do I need now?
If the answer is negative, consider increasing the policy amount.
Buying a Home
Purchasing a home is a big financial decision (perhaps, the biggest one you will ever make in your life). This is also a good time to look at your insurance needs anew. The last thing you would want is to die with a balance on your home loan. That would mean your family may have to dip into their savings to pay it off or risk foreclosure.
Neither of the scenarios is pleasing — but the good news is you can ensure things never get so bad. Protect your home financially by making sure your death benefit amount is enough to cover the remainder of your home loan, in addition to your family’s other financial needs.
In short, when buying a home, do not hesitate to update your life insurance policy if needed.
Starting a New Business
Launching your business is exciting. It may also be a good time to reassess your life insurance policy. Your risk profile may change as you go from a salaried person to an entrepreneur. Reviewing your life insurance policy can help you ensure your family is adequately protected.
How to update your life insurance policy
Making changes to your life insurance policy may be easy or not, depending on your insurer and the kind of changes you want to make.
For instance, if you want to change your beneficiary or add another one, that is easy. Simply fill out the required form, provide the relevant details, and your insurer will do the rest.
If you want to extend your term life insurance policy, that is usually not a problem, either. As the policy approaches the end of its term, you can renew it or convert it into a permanent life insurance policy. In either situation, you will not have to take a medical test again.
Changing the death benefit amount, however, might not be so easy. Not every insurance carrier lets policyholders tweak the death benefit amount as their financial needs change.
However, if your insurer lets you increase the coverage amount after certain life events, like the birth of a child, that is a pretty good deal. Even though your premiums will increase, you will still be paying less than what you would have if you were to buy a new policy. This is because while your current insurer will not ask you to take a medical exam to raise the death benefit, a new insurance carrier would require you to undergo a physical exam for approval. If you have developed a health condition recently, it will show up in your medical exam and consequently increase your premium rate significantly.
But what should you do if your insurer turns down your request for a death benefit increase?
Instead of canceling the current policy and buying a new one, consider purchasing a top-up policy to fill in the gap. Premiums for life insurance are typically lower the younger you are when you buy it. In other words, your existing policy is likely to be priced at a much more favorable rate than any policy you can find now, and as such, is worth keeping.
Who benefits from updating your life insurance policy?
Proceeds from your policy go to your beneficiaries after your death. Beneficiaries are of two types: irrevocable and revocable. You can change a revocable beneficiary without their consent. However, an irrevocable beneficiary can only be changed with their written consent.
To change a beneficiary or add a new one, you must first contact the insurer and request a beneficiary change form. Then, fill in the form accurately and submit it. If you have multiple beneficiaries, mention how you want the payout to be distributed. Also, you can name a person or people as the contingent beneficiary, who receives the death benefit if the primary beneficiary dies before you.
What information is required to surrender a policy?
Simply put, surrendering a life insurance policy is to cancel it. The procedure is relatively simple for a term life policy since it does not build cash value. Just inform the insurer about your intentions and fill out the relevant form. In fact, if you want, you do not even need to do that. Simply stop making the premium payments, and the insurer will automatically cancel your term policy.
Whole life and universal life policies, by contrast, accumulate cash value. This means when you surrender such a policy, you may receive a payout, called the surrender cash value. Your insurer may ask you some questions, besides requiring you to fill out the surrender form, to protect you against fraud and scams. Once everything is in order, the insurance company will cancel the policy and issue you the cash surrender value, assuming there is one.
Conclusion
When life changes and so to do your life insurance needs. Review your policy when a major life event is around the corner, like a marriage, the purchase of a home, or the launch of your business. A reassessment will help you determine if your life insurance policy requires any changes. If it does, go ahead and make them. After all, a life insurance policy is only helpful if it covers your family’s needs adequately.
Gregory Rozdeba is the CEO of Dundas Life, Canada’s leading digital insurance brokerage. He has over 9 years of experience in the life insurance industry. Gregory previously served as Director of Sales at a Toronto-based insurtech firm, taking the company from no product to raising over $7.6M+ in venture capital. Gregory holds a Bachelor of Finance & Accounting from Ontario Tech University and a Master of Information Management from FH Joanneum.
