September is Life Insurance Awareness Month, making it a good time to ask an important question: Does your current life insurance still fit your life today?
Life insurance is often purchased during a major milestone—getting married, buying a home, having children, or starting a business. Once the policy is in place, however, it can be easy to put it away and rarely think about it again.
Meanwhile, life keeps changing.
Your income may increase. Your family may grow. Your mortgage balance may decrease. You could change careers, start a business, approach retirement, receive an inheritance, or begin caring for aging parents.
As your financial life changes, your life insurance needs may change too.
Here are five things to consider when reviewing your life insurance coverage.
1. How Much Life Insurance Do I Need?
There isn't a single amount of life insurance that's appropriate for everyone.
While you may come across general rules of thumb for calculating coverage, your actual needs depend on your financial situation, family, goals, and the purpose you want the insurance to serve.
Start by asking what would happen financially if you were no longer here.
Would your family need to replace your income? Would you want your mortgage or other debts paid off? Do you want to provide money for your children's education? Would your spouse have enough resources to maintain their lifestyle?
Your life insurance needs may also be influenced by business ownership, estate planning goals, existing investments, retirement accounts, and other financial resources.
Instead of focusing solely on a particular dollar amount, consider what you need your life insurance to accomplish.
2. Is Term or Permanent Life Insurance Right for Me?
Another important part of a life insurance review is understanding what type of coverage you currently have.
Term life insurance provides coverage for a specific period, such as 10, 20, or 30 years. It may be appropriate when you're trying to protect against a financial need that could decrease over time, such as replacing income while children are young or covering a mortgage.
Permanent life insurance is generally designed to provide lifetime coverage as long as the policy requirements are met. Depending on the type of policy, it may also have a cash value component.
One isn't automatically better than the other.
The appropriate type of life insurance depends on your goals, financial situation, budget, and how the policy fits into your overall financial plan.
If you've owned the same policy for many years, understanding exactly what you have—and why you still have it—is an important part of the review process.
3. When Should I Review My Life Insurance?
You don't necessarily need to change your life insurance every year, but it is worth reviewing your coverage periodically.
A life insurance review can be especially important after a major life event, including:
Getting married or divorced
Having or adopting a child
Buying or selling a home
Receiving a significant increase or decrease in income
Changing careers
Starting, buying, or selling a business
Taking on substantial debt
Becoming responsible for an aging parent
Children becoming financially independent
Approaching or entering retirement
Experiencing significant changes to your assets or estate plan
Even if you haven't experienced a major life change, periodically reviewing your policy can help you understand what you own and determine whether it still aligns with your goals.
4. Are Your Life Insurance Beneficiaries Up to Date?
Your coverage amount isn't the only thing that deserves attention.
Review your life insurance beneficiaries, too.
Your beneficiary designation tells the insurance company who should receive the policy's death benefit. A designation you made 10 or 20 years ago may no longer reflect your current wishes.
Marriage, divorce, births, deaths, and other changes within your family are all reasons to take another look.
Beneficiary designations can have significant financial and estate planning consequences, so it's important to consider them alongside your broader financial and estate plan.
Don't assume that updating another part of your estate plan automatically updates the beneficiary listed on your life insurance policy.
5. How Does Life Insurance Fit Into Your Financial Plan?
Perhaps the most important part of a life insurance review is looking beyond the policy itself.
Life insurance is just one part of your overall financial picture.
Your retirement savings, investment accounts, Social Security benefits, pension benefits, debt, emergency savings, estate plan, income, and other financial resources can all affect how much protection you need.
Your needs at 35 may look very different from your needs at 55 or 65.
That's why the question shouldn't only be:
"Do I have enough life insurance?"
Consider asking:
"If something happened to me, would the financial plan I've built still work for the people who depend on me?"
That question puts life insurance where it belongs—as one component of a larger financial plan.
Frequently Asked Questions About Life Insurance
How often should I review my life insurance?
It's a good idea to periodically review your life insurance and take another look whenever you experience a significant change in your family, finances, career, or long-term goals. Even when your coverage doesn't need to change, a review can help confirm that your existing policy still serves its intended purpose.
When should I update my life insurance beneficiaries?
Consider reviewing your beneficiaries after major life events such as marriage, divorce, the birth or adoption of a child, or the death of a previously named beneficiary. It's also worthwhile to periodically verify that the beneficiary information on your policy still reflects your wishes.
Do I still need life insurance when I retire?
It depends. Some people may have less need for income replacement after entering retirement, while others may continue to use life insurance as part of their estate, legacy, business, or other financial planning strategies. Your assets, debts, income needs, family situation, and financial goals should all be considered.
What happens if I have too little life insurance?
If your coverage isn't sufficient for the needs it was intended to address, your family could face a financial shortfall. That's why it's helpful to consider specific expenses and financial goals rather than choosing a coverage amount based solely on a general rule of thumb.
Make Life Insurance Awareness Month Your Reminder
You don't have to wait for a major life event to look at your coverage.
Use Life Insurance Awareness Month as an annual reminder to pull out your policies, check your beneficiaries, review your coverage, and make sure your life insurance still makes sense within your overall financial plan.
At Bridger Financial Group, we believe decisions about insurance should be considered alongside the rest of your financial life. Looking at the full picture can help you better understand whether the strategies you've put in place continue to support the people and goals that matter to you.
If it's been a while since you've reviewed your life insurance, consider making it part of your next financial planning conversation. Schedule Here
This content is intended for educational and informational purposes only and should not be considered individualized financial, insurance, tax, or legal advice. Insurance products, features, costs, and availability vary, and individual needs depend on personal circumstances.