Through the ages: Changing your life insurance policy

Working with your insurance agent as part of your financial planning process can help ensure you have enough coverage for any unplanned situation while at the same time making sure you aren’t paying for products you no longer use. Here are some considerations when deciding whether to change your life insurance policy and benefits.

Having too little life insurance

Linda Sunnenberg had always depended on the life insurance provided by her company. It’s something she knew would be there to help with any expenses after her death, probably even leaving a little extra for her son and grandchildren.

“I didn’t have any other life insurance because I knew that was already taken care of,” says Sunnenberg, who lives in Cincinnati. Then she received a notice in the mail that the company was discontinuing the plan.

“I got a check for $500 and that was it,” she says. “So now I don’t have anything.”

Sunnenberg isn’t alone. Many people depend on their employer for life insurance, and while many companies pay for their employees’ life insurance, it may not be enough to cover expenses and replace your full income in the event of your death. An employer-sponsored life insurance plan also means you will likely lose coverage if you leave the company.

Having a supplemental life insurance policy is always a good idea – and you’ll also want to make sure that your policy is enough to cover the needs of your family if necessary.

According to recent Bankrate Money Pulse survey, about 60% of Americans have life insurance, but about half of those don’t have sufficient funds to fully take care of their families if they die.

“This is a case where inflation can have a significant effect,” says James Anderson, a certified financial planner and senior financial adviser with Anderson Asset Management in Bell Buckle, Tenn.

“For example, $500,000 may be enough to cover income now if the spouse were to die, but what will that $500,000 buy in 15 years after inflation has weakened its buying power?” he asks.

Changing your type of coverage

As your life changes, so do your insurance needs - and it might be time to evaluate the type of insurance you’re carrying. For example, if you have a term policy, the coverage could end while you still have insurance needs.

This might be a good time to talk with your agent about switching to a permanent life insurance plan. The cash-value insurance policy has certain tax advantages and savings, and the death benefits do not expire, so it is another way to start building value for your supplemental retirement income.

When to re-evaluate your life insurance needs

There are certain universal milestones that we should watch for and use as points to re-evaluate our insurance needs and coverage. Consulting with your insurance agent when these life changes occur is important and can make a tremendous difference in your financial future.

Here are some of the moments to be aware of and how they can affect you:

• Young adult: You’ve been on your parent’s policy and now it’s time to step out on your own. If you don’t have any dependents or a mortgage, getting basic coverage to start building financial security may be what you need.
• Newly married: This is a great time to evaluate coverage. Think about what it would take for your spouse to cover the cost of the mortgage, taxes and other expenses without you.
• New parents: Once a baby arrives, it’s time to start looking at what it takes to keep things running if your income disappears. Even if you’re a stay-at-home mom, there would be a certain financial burden for things like child care if you were not there.
• Empty nest: It’s important to carefully evaluate this stage in life to make sure there is plenty to provide for you or your spouse if one of you dies. You don’t want to have to dip into savings for things like the mortgage payment, medical expenses or other bills.
• Retirement: It’s important to keep your life insurance current and consider your future needs. If you have not already done your estate and legacy planning, this should be at the top of your “to-do” list.

Reviewing your coverage regularly with your insurance agent will help ensure you have the best coverage that fits your needs.