When investing in mutual funds, there is a thumb rule to follow: the insurance amount must be equal 7–10 times the amount of your annual salary. However, like all rules, this is not always unbreakable. There are various events in your life that influence your lifestyle, like marriage, childbirth, buying a home or car and so on. You need to accommodate all these financial changes into your insurance amount so that your family’s lifestyle remains unchanged in case of an unfortunate event. To do so, you must review your life insurance regularly. Let’s look at answers to some of the questions pertaining to reviewing a life insurance.
How frequently should you review your insurance?
Ideally, you must review your insurance plan on an annual basis. In case, there are no major life events in the year, the plan will not need any changes. An annual review wouldn’t hurt.
Life stages post which life insurance review is a must
Getting Married – If your spouse depends on your income, you may want to increase your life insurance cover. The increment in coverage amount depends on your income, debt loads, and other financial aspects.
Having Children – A child’s education can take a toll on your finances. Imagine the burden you’re your family would have to bore if something were to happen to you. Thus, it is mandatory that you review your insurance plan after having children.
Availing Debt – When you buy something expensive like a home, second home, car or foreign vacation using debt, it is essential that you accommodate your future financial expenses in your insurance amount. It could be difficult for your loved ones to bore the brunt of your debts. You must also review your insurance cover in case you have business debt.
What to consider while reviewing the plan?
Financial needs: Your financial liabilities tend to change with each passing year. Without the right amount of planning, these costs may dent your finances. School fees, medical bills, expansion, renovation costs or any other unaccounted expenditures would influence your lifestyle. Thus, you need to consider the future costs of such expenses when reviewing your insurance plan.
Relevant riders: Riders like child riders end at certain ages, so you must review them as time passes. There are many add-ons like critical-illness rider, disability rider, accidental death benefit rider, disability rider, term rider or waiver of premium rider. You might not need a particular rider now that the stage for the rider has passed. You may want to replace such riders with relevant ones. For example, once your child rider ends, you could add-on the term rider so that you could recover all your paid premiums.
Debt: In case of an unfortunate event, your life insurance payment is supposed to ensure that your nominees continue with the lifestyle that they are habituated to. However, say if you had taken a home loan, then all your insurance payment could go to the lender and your family would be left penniless. Thus, if you’ve taken any form of debt in the year under consideration, then you must increase your insurance cover to accommodate the loan charges.
Paying premiums on time and just purchasing a life insurance plan may not be enough unless the plan suits your needs. Revisit your life insurance policy from time to time to ensure that the financial goals are met at every important stage in your life. You have to ensure that the plan works for you and meets your individual needs.