ST. CROIX INSIGHTS

Review Your Life Insurance for Optimal Coverage

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC
Multiracial couple meeting with their female financial advisor

Life insurance is a fundamental part of financial planning, providing essential security for you and your loved ones. However, it’s not a set-it-and-forget-it product. Regular life insurance policy reviews are important to ensure that your policy continues to meet your needs and provides adequate protection.

Why Regular Reviews Are Essential

Life circumstances and financial goals change over time, necessitating periodic reviews of your life insurance policy. An annual review is a good starting point, but major life events can also trigger the need for a reassessment. Here’s a guide to help you through the review process.

Key Reasons to Conduct a Life Insurance Policy Review

If the following occur during your lifetime, grab your life insurance policies and make sure nothing needs updating.

Marriage or Divorce

A change in marital status would likely bring the need to update your policy’s beneficiary. Keep in mind, since a life insurance policy is a legal contract, it trumps other financial documents like a will. If you get divorced and update your will to reflect a new relationship but your life insurance policy lists your ex-spouse, guess who gets the life insurance benefits? It’s legally binding, and even a lawsuit may not change things.

If your life insurance policy’s coverage amounts reflect your financial responsibilities prior to getting into a serious relationship, it may be inadequate. In most cases, people buy life insurance to help their loved ones financially should they die. This can include covering shared debts, a mortgage, the costs of raising children, and supplemental retirement funds. If you got married, do you now need more life insurance?

  • Beneficiaries: Update your beneficiary list to reflect your current marital status. If you’re newly married, ensure your spouse is listed as a beneficiary. In case of a divorce, you may need to change your beneficiary designations to reflect your new situation.
  • Coverage Amount: Evaluate whether your current coverage is sufficient to protect your spouse or dependents.

Home Purchase

A house is often the largest investment a person makes in their lifetime. If you live with others who rely on you, a term life insurance policy is ideal protection while you pay off your mortgage.

If you upgrade, downgrade, buy a vacation home, or buy a rental investment property, it’s time to review your life insurance policies.

  • Beneficiaries: Who becomes responsible for your mortgage should you die? Consider this person when reviewing your policies.
  • Coverage Amount: If you’ve bought a home, make sure your life insurance coverage is enough to pay off the mortgage. This ensures that your family can stay in the home without financial strain if something happens to you.

Changes in Dependents

A parent has the greatest need for life insurance. Your children rely on you for everything. What happens if you die unexpectedly?

Raising children is expensive. The estimated cost to raise a child from birth to age 17 is approximately $313,939 as of May 2024. This doesn’t even include the cost of tuition if you plan to assist them. Nor does it include what happens after they turn 18. Many children come back home after college or never leave until many years into adulthood.

You and your spouse should both have life insurance, especially if you’re raising kids together. Should the worst happen and one — or both — of you die before your children are financially independent, what happens to them? Life insurance can protect against the what-ifs.

  • Growing Household: If you’ve had a baby, adopted a child, or are now caring for an aging parent, reassess your coverage to ensure it meets the needs of all dependents.
  • Child Riders: Consider adding a child rider if you don’t already have coverage for your children.

Employment Changes

Changing jobs may bring the need to review your policy, whether you lost your job, got a new job, or got a promotion.

If you lost your job and are struggling to pay bills, you may need to consider decreasing your coverage to save money. If possible, don’t cancel your coverage if you still have dependents relying on you. Work with your insurance agent to see what options you have.

If you get a new job, it’s important to explore your new benefits. Did you once have group life insurance and now no longer do? Did you receive a significant salary increase? A promotion or salary increase may mean your lifestyle changes. Perhaps your family moves into a larger home or you buy that dream condo down south. You may now need more life insurance coverage to protect your hard-earned assets.

  • Income Changes: If you’ve received a raise or changed jobs, assess whether your current coverage aligns with your new financial situation. Employer-provided life insurance is often not sufficient on its own.
  • Benefits Changes: If your new job doesn’t offer life insurance, you may need to purchase a private policy.

Retirement

Are you nearing retirement? How are your savings looking? Is your life insurance set to retire soon, or do you have permanent life insurance?

If retirement is quickly approaching, review your life insurance policies. Do you still need life insurance? Should you cash out your permanent policy and go live life to the fullest? Or do you need to keep your coverage in place to protect your spouse? Nearing retirement definitely deserves a sit-down with your financial professional.

  • Income Replacement: Ensure your life insurance can replace any lost retirement benefits or social security income that your spouse might rely on.
  • Policy Needs: Discuss with your advisor whether you still need life insurance in retirement or if you can use the cash value of your policy for other purposes.

New Loans or Debt

Did you know that very few debts are discharged when you die? Who becomes responsible for your bills is determined by many factors, but if you’ve taken on more financial obligations, make sure your heirs have the ability to pay off any debt left with them.

  • Debt Coverage: If you’ve taken on new debt, such as a new mortgage or business loan, ensure your policy can cover these liabilities to prevent burdening your loved ones.

Health or Lifestyle Changes

The cost of a life insurance policy is heavily influenced by your health at the time of purchase. Since you’ve owned it, has your health improved? Or maybe you used to participate in a dangerous hobby and no longer do so.

If you’ve made any personal lifestyle changes for the better, you may be able to save money with a new policy or by asking for a reconsideration. Discuss your life changes with your insurance agent to determine if it’s worth reapplying.

On the opposite end of the spectrum, perhaps your health has declined. If you have a term policy that is nearing its end, what are your options? Do you have renewability or convertibility options? It’s important to review your policy before it’s set to expire. It may be too late if you wait too long.

  • Improved Health: If your health has improved, you might qualify for a lower premium. Quitting smoking or losing weight are examples that can lead to savings.
  • Worsened Health: If your health has declined, check your policy’s conversion options to extend your coverage without a new medical exam.

Reasons to Review Your Policy on an Annual Basis

Major life events aren’t the only reasons to review your life insurance policy.

Beneficiary Changes

You buy life insurance not for you, but for your beneficiaries. Make sure the people you want to receive your policy’s death benefits are listed on the policy.

When your children are young, you shouldn’t list them as beneficiaries since insurers can’t pay money to minors. But if they’re now adults, do you want them listed as beneficiaries?

Things to think about:

  • Are certain children more financially responsible than others?
  • Is one child involved in the family business and one went their own way?
  • Does one child have children, and do you want to leave money for your grandchildren?

It may be necessary to set different distribution percentages. And it bears repeating that any changes in marital status should bring about a beneficiary review.

  • Update Beneficiaries: Regularly update your beneficiaries to reflect changes in your personal life and ensure the death benefit goes to the right people.
  • Distribution Percentages: Adjust the distribution percentages if necessary, especially if you want to leave a larger share to certain beneficiaries like grandchildren.

Compare Costs

How long ago did you purchase your policy? If it was over ten years ago, there is a chance you have access to more competitive rates now, especially if it’s a term life insurance policy.

It may be worth it to work with an agent who has access to many different insurers to compare quotes and see what it may cost you to buy a new policy. Although you’ve aged, if your health hasn’t declined, you may find quite affordable rates for a brand-new policy. If you do find a policy to apply for, it’s important not to cancel your current coverage until after your new policy is 100% in force.

  • Premiums: Compare your current premiums with quotes from other insurers to ensure you’re not overpaying.
  • Riders and Add-ons: Review any additional riders to ensure they are still necessary and cost-effective.

Check Policy Performance

If you have a permanent life insurance policy that generates cash value based on market rates or specific indexes, meet with your agent to go over its performance. Cash value life insurance policies can be very complex, and if you’re using the policy’s internal values to pay premiums, it’s also imperative to make sure your policy is in good standing and not close to lapsing.

  • Cash Value: For whole life policies, review the cash value and explore options for loans or premium payments.
  • Dividends: Understand how dividends are being used and whether they are maximizing your benefits.

Here’s a real-life example to share. I just sat down with a client for a policy review.

She has a good group life insurance policy but moved into the next age range which meant a rate increase. I worked with her to purchase a new, private life insurance policy for herself because it would be cheaper in the long run to do so rather than continue with the policy from her employer. Plus, the group policy won’t follow her when she retires, the privately owned one will.

Consult with a Financial Advisor

Regular reviews can safeguard your financial future and provide peace of mind for you and your loved ones. Take action today and contact me for a policy review to optimize your life insurance policy and ensure it aligns with your evolving financial goals.

 

Life insurance is a fundamental part of financial planning, providing essential security for you and your loved ones. However, it’s not a set-it-and-forget-it product. Regular life insurance policy reviews are important to ensure that your policy continues to meet your needs and provides adequate protection.

Why Regular Reviews Are Essential

Life circumstances and financial goals change over time, necessitating periodic reviews of your life insurance policy. An annual review is a good starting point, but major life events can also trigger the need for a reassessment. Here’s a guide to help you through the review process.

Key Reasons to Conduct a Life Insurance Policy Review

If the following occur during your lifetime, grab your life insurance policies and make sure nothing needs updating.

Marriage or Divorce

A change in marital status would likely bring the need to update your policy’s beneficiary. Keep in mind, since a life insurance policy is a legal contract, it trumps other financial documents like a will. If you get divorced and update your will to reflect a new relationship but your life insurance policy lists your ex-spouse, guess who gets the life insurance benefits? It’s legally binding, and even a lawsuit may not change things.

If your life insurance policy’s coverage amounts reflect your financial responsibilities prior to getting into a serious relationship, it may be inadequate. In most cases, people buy life insurance to help their loved ones financially should they die. This can include covering shared debts, a mortgage, the costs of raising children, and supplemental retirement funds. If you got married, do you now need more life insurance?

  • Beneficiaries: Update your beneficiary list to reflect your current marital status. If you’re newly married, ensure your spouse is listed as a beneficiary. In case of a divorce, you may need to change your beneficiary designations to reflect your new situation.
  • Coverage Amount: Evaluate whether your current coverage is sufficient to protect your spouse or dependents.

Home Purchase

A house is often the largest investment a person makes in their lifetime. If you live with others who rely on you, a term life insurance policy is ideal protection while you pay off your mortgage.

If you upgrade, downgrade, buy a vacation home, or buy a rental investment property, it’s time to review your life insurance policies.

  • Beneficiaries: Who becomes responsible for your mortgage should you die? Consider this person when reviewing your policies.
  • Coverage Amount: If you’ve bought a home, make sure your life insurance coverage is enough to pay off the mortgage. This ensures that your family can stay in the home without financial strain if something happens to you.

Changes in Dependents

A parent has the greatest need for life insurance. Your children rely on you for everything. What happens if you die unexpectedly?

Raising children is expensive. The estimated cost to raise a child from birth to age 17 is approximately $313,939 as of May 2024. This doesn’t even include the cost of tuition if you plan to assist them. Nor does it include what happens after they turn 18. Many children come back home after college or never leave until many years into adulthood.

You and your spouse should both have life insurance, especially if you’re raising kids together. Should the worst happen and one — or both — of you die before your children are financially independent, what happens to them? Life insurance can protect against the what-ifs.

  • Growing Household: If you’ve had a baby, adopted a child, or are now caring for an aging parent, reassess your coverage to ensure it meets the needs of all dependents.
  • Child Riders: Consider adding a child rider if you don’t already have coverage for your children.

Employment Changes

Changing jobs may bring the need to review your policy, whether you lost your job, got a new job, or got a promotion.

If you lost your job and are struggling to pay bills, you may need to consider decreasing your coverage to save money. If possible, don’t cancel your coverage if you still have dependents relying on you. Work with your insurance agent to see what options you have.

If you get a new job, it’s important to explore your new benefits. Did you once have group life insurance and now no longer do? Did you receive a significant salary increase? A promotion or salary increase may mean your lifestyle changes. Perhaps your family moves into a larger home or you buy that dream condo down south. You may now need more life insurance coverage to protect your hard-earned assets.

  • Income Changes: If you’ve received a raise or changed jobs, assess whether your current coverage aligns with your new financial situation. Employer-provided life insurance is often not sufficient on its own.
  • Benefits Changes: If your new job doesn’t offer life insurance, you may need to purchase a private policy.

Retirement

Are you nearing retirement? How are your savings looking? Is your life insurance set to retire soon, or do you have permanent life insurance?

If retirement is quickly approaching, review your life insurance policies. Do you still need life insurance? Should you cash out your permanent policy and go live life to the fullest? Or do you need to keep your coverage in place to protect your spouse? Nearing retirement definitely deserves a sit-down with your financial professional.

  • Income Replacement: Ensure your life insurance can replace any lost retirement benefits or social security income that your spouse might rely on.
  • Policy Needs: Discuss with your advisor whether you still need life insurance in retirement or if you can use the cash value of your policy for other purposes.

New Loans or Debt

Did you know that very few debts are discharged when you die? Who becomes responsible for your bills is determined by many factors, but if you’ve taken on more financial obligations, make sure your heirs have the ability to pay off any debt left with them.

  • Debt Coverage: If you’ve taken on new debt, such as a new mortgage or business loan, ensure your policy can cover these liabilities to prevent burdening your loved ones.

Health or Lifestyle Changes

The cost of a life insurance policy is heavily influenced by your health at the time of purchase. Since you’ve owned it, has your health improved? Or maybe you used to participate in a dangerous hobby and no longer do so.

If you’ve made any personal lifestyle changes for the better, you may be able to save money with a new policy or by asking for a reconsideration. Discuss your life changes with your insurance agent to determine if it’s worth reapplying.

On the opposite end of the spectrum, perhaps your health has declined. If you have a term policy that is nearing its end, what are your options? Do you have renewability or convertibility options? It’s important to review your policy before it’s set to expire. It may be too late if you wait too long.

  • Improved Health: If your health has improved, you might qualify for a lower premium. Quitting smoking or losing weight are examples that can lead to savings.
  • Worsened Health: If your health has declined, check your policy’s conversion options to extend your coverage without a new medical exam.

Reasons to Review Your Policy on an Annual Basis

Major life events aren’t the only reasons to review your life insurance policy.

Beneficiary Changes

You buy life insurance not for you, but for your beneficiaries. Make sure the people you want to receive your policy’s death benefits are listed on the policy.

When your children are young, you shouldn’t list them as beneficiaries since insurers can’t pay money to minors. But if they’re now adults, do you want them listed as beneficiaries?

Things to think about:

  • Are certain children more financially responsible than others?
  • Is one child involved in the family business and one went their own way?
  • Does one child have children, and do you want to leave money for your grandchildren?

It may be necessary to set different distribution percentages. And it bears repeating that any changes in marital status should bring about a beneficiary review.

  • Update Beneficiaries: Regularly update your beneficiaries to reflect changes in your personal life and ensure the death benefit goes to the right people.
  • Distribution Percentages: Adjust the distribution percentages if necessary, especially if you want to leave a larger share to certain beneficiaries like grandchildren.

Compare Costs

How long ago did you purchase your policy? If it was over ten years ago, there is a chance you have access to more competitive rates now, especially if it’s a term life insurance policy.

It may be worth it to work with an agent who has access to many different insurers to compare quotes and see what it may cost you to buy a new policy. Although you’ve aged, if your health hasn’t declined, you may find quite affordable rates for a brand-new policy. If you do find a policy to apply for, it’s important not to cancel your current coverage until after your new policy is 100% in force.

  • Premiums: Compare your current premiums with quotes from other insurers to ensure you’re not overpaying.
  • Riders and Add-ons: Review any additional riders to ensure they are still necessary and cost-effective.

Check Policy Performance

If you have a permanent life insurance policy that generates cash value based on market rates or specific indexes, meet with your agent to go over its performance. Cash value life insurance policies can be very complex, and if you’re using the policy’s internal values to pay premiums, it’s also imperative to make sure your policy is in good standing and not close to lapsing.

  • Cash Value: For whole life policies, review the cash value and explore options for loans or premium payments.
  • Dividends: Understand how dividends are being used and whether they are maximizing your benefits.

Here’s a real-life example to share. I just sat down with a client for a policy review.

She has a good group life insurance policy but moved into the next age range which meant a rate increase. I worked with her to purchase a new, private life insurance policy for herself because it would be cheaper in the long run to do so rather than continue with the policy from her employer. Plus, the group policy won’t follow her when she retires, the privately owned one will.

Consult with a Financial Advisor

Regular reviews can safeguard your financial future and provide peace of mind for you and your loved ones. Take action today and contact me for a policy review to optimize your life insurance policy and ensure it aligns with your evolving financial goals.