Talking about life insurance coverage is rarely anyone’s idea of a good time, but it’s a critical piece of the puzzle when it comes to planning for financial success of you and your family. You’re on the right track if you have a policy, but life insurance isn’t a set-it-and-forget-it deal.
You don’t want to pay too much for a policy you don’t need, and you certainly don’t want to be in a situation where you have too little coverage. As your life changes, your coverage needs evolve. If you reach one of these five milestones in life, it’s time to re-evaluate your policy to make sure it still works for you and your family.
1. You Get Married
You might not have carried a life insurance policy when you were single, but now that you’re married, you and your spouse need to evaluate how much coverage is right for you. If you’re the primary breadwinner, you may want to make sure that your life insurance policy is sufficient enough to provide for your partner if you pass away. Opt for a policy that pays out enough to cover his or her financial needs and responsibilities, which may include things such as normal bills and any debt you had.
If you’re not sure how to determine what you need to start with, you can use this life insurance needs calculator from Voya to help you estimate the appropriate amount of coverage.
2. You Have Kids
Starting or growing a family means increasing the number of people who financially rely on you. Children are a financial responsibility until they’re 18 (at a minimum). Your life insurance policy should be able to cover your kids until they reach legal adulthood, in case anything happens to you in the meantime.
3. Your Kids Stop Relying on You Financially
It can also be a good idea to re-evaluate your life insurance plan once your financial dependents become independent, to make sure you’re not carrying too much coverage. When you’re no longer responsible for providing for all your children’s wants and needs, you may decide that less life insurance coverage is the best option for you.
4. Your Income Changes
As Bankrate notes, carrying seven to 10 times the amount of your annual salary is one rule of thumb to help you determine the right amount of coverage. That means, as your salary changes, so should your policy. Whenever you get a big raise or increase your income, consider reviewing your life insurance coverage and adjusting it accordingly.
5. You Retire
You also need to revisit your insurance coverage once you leave the workforce and enter retirement. Retirement is a huge transition in life, and it’s a good time to scrutinize your finances closely. You want to make sure your insurance — along with your budget, investment allocations and health care coverage — is appropriate for this new stage of life.
Did you just go through a big life change that’s not on this list? These aren’t the only scenarios in which you should think about updating your coverage. “Life insurance should be re-evaluated at all major turning points and life transitions,” suggests Eric Roberge, CFP and founder Beyond Your Hammock. “Increases in income, purchases of large assets like real estate, changes in family dynamics or new long-term financial goals, like saving for college, should trigger a review of your policies,” says Roberge.
The best life insurance policy is one that fits your needs, and, as your needs evolve and you reach new milestones in your life, be sure to take the time to re-evaluate your policy and make changes when necessary. You’ve worked hard to plan for the future financial comfort of your family, and you deserve a policy that works for you and provides the protection you need.