Why Updating Your Life Insurance Policy is Crucial

Life insurance is a cornerstone of a comprehensive estate plan, ensuring that your loved ones are financially protected after your passing. However, as your life circumstances change, so too might your life insurance needs. Here are nine compelling reasons to consider updating your life insurance policy.

1. You Want a Different Type of Life Insurance

Life insurance generally comes in two forms: term and permanent. Term life insurance covers you for a specific period, usually between 10 to 30 years. If you pass away during this term, your beneficiaries receive a death benefit. On the other hand, permanent life insurance not only provides a death benefit but also accumulates cash value that you can borrow against or withdraw. It lasts your entire lifetime or up to age 99, depending on the policy. However, permanent life insurance can be significantly more expensive—up to 15 times more than term life insurance.

Term life insurance is more affordable, especially if you purchase it when you’re young and healthy. As you age and your financial situation improves, you might consider switching to permanent life insurance. Conversely, if permanent life insurance becomes too costly, you could opt to surrender the policy and take its cash value.

You might also want to add insurance riders to your policy, such as those covering long-term care or allowing you to access your death benefit in case of a serious illness. Some insurers include these features as standard, so it pays to shop around.

2. Your Term Life Insurance Policy Is Expiring

When your term life insurance policy expires, you’ll need to renew it or shop for a new one to maintain coverage. Not all term policies are renewable, but if yours is, you can generally renew it annually without a new application or medical exam. This can be beneficial if your health has deteriorated since you first got the policy. However, keep in mind that premiums usually increase with age.

If you’re in good health and prefer stable premiums, consider getting quotes from multiple insurers. This typically involves filling out an application and undergoing a medical exam.

3. Your Family Status Has Changed

If you’re single with no dependents, you might not need life insurance. However, once you marry or have children, life insurance becomes essential to provide financial protection for your family. Each new child may necessitate additional coverage, especially if you want to cover future college expenses.

Conversely, getting divorced might mean reducing or dropping your life insurance coverage if you don’t have children needing financial support. You might also want to change your beneficiary to leave an inheritance to friends, family members, or a favorite charity.

4. You’re Buying or Paying Off a Home

Purchasing a home is a significant financial commitment, often spanning decades. Having enough life insurance to cover your mortgage ensures that your loved ones can stay in the family home even without your income. Once your home is paid off, you might consider reducing your life insurance coverage.

5. Your Health Has Changed

Life insurance premiums are partly based on your health. Poor health or habits like smoking can lead to higher premiums. If your health has improved significantly since you purchased your policy, you might qualify for lower rates. Check if your current insurer will reconsider your rate, which usually involves a medical exam, and compare options from other providers.

Changes in a partner’s or child’s health can also necessitate adjustments to your life insurance. For instance, if your partner becomes disabled or your child develops a chronic condition, they may require costly care not covered by health insurance. Increasing your life insurance coverage can help cover these expenses if you pass away.

6. Your Financial Situation Is Better—or Worse

The small life insurance policy you bought when you first got married might not suffice as your career progresses. A higher income often leads to higher expenses, such as a bigger house, a vacation home, or private school for the kids. You may need more life insurance to ensure your family can maintain this lifestyle without you.

If you’re facing financial difficulties, the security life insurance provides becomes even more crucial. Instead of dropping your term life insurance, look for better rates with other insurers. If permanent life insurance premiums are straining your budget, consider canceling the policy and using its cash value to buy term life insurance instead.

7. Your Employment Changes

Changes in your or your partner’s job can affect your life insurance needs. If one partner leaves a job and loses employer-provided group term life insurance, you might need to increase your other life insurance coverage to compensate. If your partner becomes a stay-at-home parent and you rely on one income, more life insurance can prevent your partner from having to return to work immediately if you pass away.

Starting a business might also require new life insurance. Purchasing life insurance on key business partners can provide the surviving partners with enough money to buy out the deceased owner’s share or keep the business financially stable.

8. You’re Nearing Retirement

As you approach retirement, reassess your finances to determine if you still need life insurance. If your partner can receive Social Security or pension benefits or withdraw from retirement accounts without penalty, and if your home is paid off and your children are financially independent, you might be able to drop your life insurance.

9. You’re Supporting Aging Parents

As your parents age, their health and financial situation might change, potentially making them financially dependent on you. Increasing your life insurance coverage can ensure they are cared for, no matter what happens to you.

The Bottom Line

Insurance carriers consider factors like your health, gender, and age when setting life insurance premiums. Your credit-based insurance score may also influence your premiums. In most states, insurers can check these scores when you apply for life insurance.

Although credit-based insurance scores differ from the scores lenders use, such as the FICO® Score, they are based on similar data. Checking your FICO® Score for free through Experian can indicate whether your score needs improvement. Making timely payments and paying down credit card debt can positively impact both types of scores, potentially lowering your life insurance premiums.

At O1ne Mortgage, we understand that life insurance is a critical component of your financial plan. If you need assistance with your mortgage or have any questions about life insurance, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate your options and find the best solutions for your needs.