If you are not sure what life insurance is the next few paragraphs provide a brief overview of what it is.
A life insurance policy is a guarantee that your loved ones will be provided with a financial cushion after your death. Broadly, there are two kinds of life insurance policies:
Whole of life cover, as the name suggests, is an ongoing policy. You choose the amount you want to pay each month in return for the amount of cover you’re insured for. When you die, the policy pays out to your beneficiaries. Term life insurance is different in that you set the term of the policy (a point in the future where it expires). If you die within that term, the policy pays out. If you don’t, it doesn’t. Since it’s a given that you will eventually pass away, whole of life policies are more expensive.
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Whatever kind of policy you choose to purchase, several factors should be kept in mind before making a final decision, and these factors should be reviewed even after you’ve bought the policy to make sure that it continues to align with changes in your lifestyle and your long-term goals.
A simple example could be when you want to change your beneficiaries or your policy is there to protect your family and you have another child.
This article will discuss events that you should consider for reviewing your life insurance policy.
It is recommended that you review your life insurance policy on an annual basis to account for major life changes. However, there are certain events that should also cause you to review your policy.
1. A change in family size
2. A change in property value (Paying off a chunk of your mortgage or buying/selling your house)
3. Debt (loan, car payments)
4. Change in health condition
5. A change in income
6. A change in beneficiaries
The most common reason to have life insurance is to protect your family’s financial situation after you’re gone. However if your family changes then so should your policy. Family size can often change under these circumstances:
• Getting married
• Getting divorced
• Becoming a parent
• Adopting a child
• Elderly parents moving in
• Children moving in after graduation
• Death of a family member
Not only will the level/type of cover need assessing, but you may wish to change the named beneficiaries on the policy as well.
When you take out a mortgage you will be strongly encouraged to take out a policy that covers that mortgage in the event of your passing.
Therefore, if the mortgage balance you owe significantly changes i.e. you pay a chunk of it off early, you should adapt your policy accordingly – the chances are you’ll be able to decrease your monthly payments as a result of the lower amount you need to insure.
Similarly, if you buy a second home, move into a bigger property or your property simply increased in value over time; you should ensure your policy matches these new circumstances.
Leaving behind money for your loved ones is the reason you got life insurance. If you’ve taken on any debts then reviewing your policy to ensure it covers those debts is common sense.
Types of debts to think about are personal loans, credit cards, car finances and anything else your loved ones could be liable for when you pass.
Your insurance provider always reviews your medical history before providing you life insurance. When there is a change these are some of the factors that can affect the insurer’s view on the terms of the policy.
• Smoking: If you are a regular smoker, or have taken up smoking after getting a life insurance policy, you might need to review it. Since, as a smoker, you are considered a higher risk when compared to non-smokers, you might be charged a higher premium for a life insurance policy.
• A change in health condition: This includes developing long-term illnesses such as Diabetes, High Blood Pressure, or Cancer.
• Disability: A sudden accident rendering you unable to work properly.
Critical illness cover supports you financially in case you are diagnosed with specific medical conditions such as a heart attack, Alzheimer’s, and multiple sclerosis. Think of critical illness as a bolt-on to your life insurance policy. It’s there to offer you financial support if you’re diagnosed with an illness.
A high income might come from an incremental pay rise, a promotion, taking a position with a higher salary package or earning more from freelancing, part-time positions. However your income has increased, you may wish to review your policy and increase the level of cover you have to reflect your higher earnings.
But what if you are unable to do your job because of an illness or injury? That’s where income protection comes in. This cover offers you financial support if an injury or illness renders you unable to work. This is different from life insurance as that specifically pays out to your beneficiaries after you pass away. Income protection is there to replace your income whilst you’re unable to work. Whilst income protection has previously been sold as a stand-alone product, many consumers now have it alongside their life cover giving them more rounded protection.
This can include the death of a loved one, a divorce/ marriage, adopting a child, adding/ subtracting a friend from the list. You may be considering adding a charity or organisation as your beneficiary or you simply wish to change who the money is left to. The options are limitless, and that’s exactly why you should review your policy from time to time by speaking with a qualified advisor.
The non-exhaustive list of factors we have discussed in this article should make it clear that there are so many things that can influence your policy. Although most advisors will recommend that you review your policy once a year. A better approach might be to review it after every change in your circumstance that could affect your premiums.
Regular reviews of your life insurance policy will ensure that you have exactly the right amount of cover, your beneficiaries are reflected correctly, your premiums are affordable, and most importantly, you have peace of mind.
The main reasons you’re better off using a qualified advisor when considering a change in your life insurance policy, are the same reasons you would use an IFA for anything else; expertise and experience.
You can certainly go to your current provider and discuss with them about the change in your circumstance that warrants a change in your policy. But why limit yourself to one provider?
Consulting an independent, qualified advisor will open up many more options for life insurance providers. As the premiums you might end up paying after a change can go up as well as down, it makes equal sense to seek advice in both cases.
If your premiums have a high chance of increasing, an independent, qualified advisor will have the best chance of finding you a provider that is competitively priced.
Likewise, a change in your circumstance warrants a decrease in your premiums, you need to ensure your new policy is at the best price.A qualified advisor will work to get you the best deal possible.
In some cases, although not very common, you might have been sold an incorrect life insurance policy. This might have been due to an omission of information from your end or you may not have opted for policies that cover you correctly. In some cases, the company you dealt with may have sold you a policy that doesn’t match your life and requirements. If it’s the former case, you will be left with a voided policy and no payout in the event of your passing.
By reviewing your policy you’ll gain peace of mind that the cover you have is right for you and the life you have today.
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