For many of us, life insurance is that purchase we hope we’ll never need. And yet, when used correctly, life insurance can form a vital source of security for a retirement plan, a business, or a young, growing family. The point is, buying life insurance is not a set-it-and-forget-it kind of event. Just as with your overall financial strategy, your estate planning documents, and other important parts of your financial life, you should periodically review your life insurance to make sure it has kept pace with your circumstances and needs.
Here are four specific life changes that typically necessitate a close look at the type, amount, and provisions of your life insurance coverage.
1. Changes in family status. It’s pretty obvious that when you marry or start having children, you should review your life insurance coverage. After all, one of the most basic functions of life insurance is to provide financial support for a spouse or children in the event of the passing of a breadwinner. But marriage and the birth of children aren’t the only times when you should re-evaluate the adequacy of your coverage. If you have responsibility for providing support for an elderly parent, that’s another family change that can create the need for adding coverage. After divorce, life insurance needs may be decreased or increased, depending on your and your ex-spouse’s situation, whether children are involved, and other factors.
2. Changes in career or business. Suppose you started your business as a sole proprietor, but you’ve added a key partner. This can create the need for more or different coverage to provide the funds to ensure business continuity in the event of the death of one of the partners. Or it may be that you have risen through the ranks at your employer, and your income has increased greatly since you originally purchased your life insurance. Experts recommend owning insurance equal to at least 7 times your annual income; if your income has grown, has your insurance coverage grown with it?
3. New or different financial obligations. Have you taken on a new mortgage or a significant business loan? Have you co-signed on debt with a partner? Life insurance can provide funds to keep your loved ones from being forced to take on difficult financial burdens in the event of your passing.
4. Approaching retirement. It may be surprising for some to learn that life insurance can have important implications for retirement. Many thriving retirees own cash-value policies that have long since become fully paid. While the death benefits of the policies may be less important now because of the availability of other financial resources, guaranteed cash values in insurance policies can provide significant assets to help fund a retirement lifestyle. They can also provide available capital for reinvestment.
I help thriving retirees and others prepare more confidently for the future by providing professional, research-tested advice on investment and other important financial matters. If you would like to learn more about how you can become more confident in your finances, click here to read my whitepaper, “The Informed Investor.”
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