Have Your Life Insurance Needs Changed?

changing life insurance needs

Updating Your Coverage…

Have you ever thought that once you get life insurance lined up, you’re done forever? You might be missing something pretty important! As different elements of your life change, like your number of children, income level, or marital status, your life insurance needs and premiums will change, too.

life insurance

If your income and expenses rise as your children get older, you may need more coverage. Maurer recommends reviewing your life insurance needs every five years and whenever you experience a major change, such as having another child, starting a new job, taking out a bigger mortgage, or getting divorced.

Annual premiums will be higher because you’re older, but if you’re in good health, they’ll still be reasonable. You may need the extra coverage only for another 10 or 15 years if your kids are teens (especially if you already have other coverage that will last longer).

A healthy 40-year-old man can get a $500,000, 20-year term policy for as little as $350 per year ($310 for a woman) or a 30-year term policy for $630 per year ($525 for a woman), according to AccuQuote.com. A $1 million policy would generally cost about $1,200 for a man and $970 for a woman. A healthy 50-year-old man can get a $500,000, 20-year term policy for $925 per year ($675 for a woman).

This is also a good time to think about what to do if your policy is set to expire before your need for coverage is up. Options include buying extra insurance for a longer term, converting your current coverage to a permanent policy, or buying some permanent insurance.

If you’ve already maxed out your IRA and 401(k) and are looking for other tax-advantaged investments, you could buy a whole life policy, which builds cash value based on the performance of the insurer’s investments. Premiums are expensive, but the insurer promises to increase your cash value by at least a minimum amount every year, and the policy usually pays dividends.
For example, a 40-year-old man could pay about $8,000 a year for a $500,000 whole life policy, but he may accumulate more than $325,000 in cash value by age 65 (based on current dividends), with nearly $200,000 guaranteed and a death benefit that could grow to about $750,000.

Later, you can withdraw the cash value tax-free up to the amount you paid in premiums over the years. Withdrawals above that level are taxed in your top tax bracket. Or you can borrow the cash value; the loan will not be taxed as a withdrawal as long as you keep the policy for the rest of your life. (Withdrawals and loans reduce your death benefit.) For an added premium that boosts the cost by about 10 percent a year, you can attach a rider to some permanent policies that lets you tap the death benefit for long-term-care expenses.
– via chicagohealthonline.com

Life Changes To Consider

Having another child or getting a new job aren’t the only changes that could affect what you need in life insurance. Below are three other major life changes you need to keep in mind that could signal that your needs have changed.

Your children have left the nest

If having children was the reason you originally purchased life insurance, you may feel that you no longer need coverage once your children are living on their own. But this isn’t necessarily the case. Before making any decision, take a look at the types and amounts of life insurance you have to make sure your spouse is protected (if you’re married). And keep in mind that life insurance can still be an important tool to help you transfer wealth to the next generation–your children and any future grandchildren.

You’re ready to retire

As you prepare to leave the workforce, you should revisit your need for life insurance. You may find that you can do without life insurance now if you’ve paid off all of your debts and achieved financial security.

But if you’re like some retirees, your financial picture may not be so rosy. You may still be saddled with mortgage payments, tuition bills, and other obligations. You may also need protection if you haven’t accumulated sufficient assets to provide for your family. Or maybe you’re looking for a way to pay your estate tax bill or leave something to your family members or to charity. You may need to keep some of your life insurance in force or even buy a different type of coverage.

Your health has changed

If your health declines, how will it affect your life insurance? A common worry is that if your health changes, your life insurance coverage will end if your insurer finds out. But if you’ve been paying your premiums, changes to your health will not matter. In fact, you should take a closer look at your life insurance policy to find out if it offers any accelerated (living) benefits that you can access in the event of a serious or long-term illness.

It’s also possible that you’ll be able to buy additional life insurance if you need it, especially if you purchase group insurance through your employer during an open enrollment period. Purchasing an individual policy may be possible, but more difficult and more expensive.

Of course, it’s also possible that your health has changed for the better. For example, perhaps you’ve stopped smoking or lost a significant amount of weight. If so, you may want to request a reevaluation of your life insurance premium–ask your insurer for more information.
– via 360 Degrees of Financial Literacy

Do you have your life insurance plan in place yet?

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