Life insurance should not be considered a static product. You need to be attentive to your policy, its evolution, characteristics, and possibilities. By intelligently managing its variables, you can save a lot of money or obtain better benefits and coverage.
In this article, we will explain how you should review your insurance periodically in order to optimize it and achieve the performance you want. Read on to learn how to review your policy regularly.
Life Insurance Review: Table of Contents
Life Insurance, A Product You Should Review
You should make a routine out of reviewing your life insurance every so often. For example, once a year or every two years. Why? Because even if you think your policy is very simple and stable, there are always possible adjustments. Your personal, family, or job situation may change. Even your health changes. All of this makes it necessary to review your life insurance and check to see if there are any possible adjustments.
You won't always be making downward adjustments, which is the most common form. It is also normal to make changes that broaden the coverage, which will probably mean that you will pay higher premiums. Therefore, you can review your policy to reduce or broaden it relative to your needs.
When purchasing your life insurance, it is very common to choose low coverage and cheap premiums. You were probably young, did not have children, and your salary did not allow too much wiggle room. But, little by little, you life starts to change and you realize that you need fuller coverage with a greater death benefit.
Another very typical type of revision is changing the life insurance model: converting temporary or term insurance into a more comprehensive permanent type. This type of revision is very interesting because it allows you to start with a cheaper policy and then obtain a more expensive one with higher coverage, without the need to go through the qualification process again.
All of these changes can be made because insurance is a dynamic product and insurers offer the option to update, improve, or reduce it. This always depends upon what you need and that you remain attentive to ways of imporving your policy terms.
The latter is very important: a large portion of insured people stick their policy in a drawer and forget about it entirely. They pay their premiums, but do not try to update their coverage or terms of agreement. This is typical of simple insurance policies, such as term insurance and whole or traditional life insurance. On the other hand, owners of universal, variable, or universal-variable insurance know that these policies need attention to be profitable and to generate more cash value, and therefore tend to be more attentive to the clauses and terms of their life insurance and review them more frequently.
What Elements Should be Reviewed on Your Life Insurance Policy
When considering reviewing your life insurance, there are several elements that would be wise to keep in mind. The most important are the following:
- Type of insurance: This type of review is universal. It allows you to redirect your insurance plan by, for example, going from term to permanent insurance. But it may be that you want to go from a whole life policy to a more demanding product, such as variable life insurance. There are even people who consider canceling the insurance altogether because they no longer need it or can no longer pay for it. In this case, you should consider the surrender of the policy, its cost, and what options are available for requesting it without any mishaps.
- Level of coverage: The death benefit, or payout, is the quantity of money received by the beneficiaries when the policy holder dies. The cost of the monthly premiums of the life insurance policy depends, in large part, on this amount: the greater the coverage, the more you pay. That is why reviewing your coverage may be useful in order to lower the price of your policy. As you grow older and your family becomes more independent, it is possible that you may no longer need as much coverage. You can talk with your insurer to make a downward revision and pay less each month. However, maybe what you need is more coverage: you've had more children, or other changes have occurred in your life, and you think that more money will be needed in case you pass. In this case, you should renegotiate to increase the benefit. When you make this revision, pay a lot of attention to the terms: very often, increasing coverage does not necessarily imply increasing premiums, or you can obtain increased coverage with minimal increases to your periodic payments.
- Premiums: What you pay each month in the form of premiums is one of the points that you can review. Above all, premiums depend on two factors: the risk assumed by the insurer when giving you the policy and the death benefit offered. We have already seen how to adjust the cost of coverage, but it may also be the case that your risks have changed. For example, if your health improves, or if you lose weight, stop smoking, or quit any dangerous activity, the risk you present goes down and you can meet with you insurer to renegotiate the price you pay.
- Clauses: Clauses are modifications made to the policy in order to extend its coverage. The principal clauses of a life insurance policy allow you to, for example, add one or several people to your coverage, obtain advance payments in certain cases, or broaden your insurance scenarios. It is important that you review these clauses periodically, because some may cease to be useful and you can void them, thus reducing the price of your insurance. Or on the other hand, you may want to add clauses, and so you will have to pay a little more for your premiums.
- Beneficiaries: Although it will not entail any financial benefits, it is important that you get used to reviewing the list of beneficiaries on your life insurance policy. You can change the people who will receive the money from the death benefit whenever you want. But above all, it is important for you to review the list in order to remove people; for example, an ex-partner whom you have divorced or people who may have died.
- Investment tools. If your life insurance is permanent and has associated investment accounts, it is very important for you to make periodic revisions and regulate its evolution. Ask yourself how these investments are evolving and if they can improve in any way, if you are able to choose the products that you will invest in (funds, foreign currency, stock). Also ask yourself if the speed at which you are accumulating cash capital is sufficient and if you are going to take out loans against that money in the future, and at what rate. With all of this information, you can plan reviews of your insurance with ease and certainty.
Whatever element it is that you need to review, do not forget to always consider your current financial situation and where you think you will be in a few years, along with any debts you have or any you think you could have. Using all of this information, you can make more effective revisions.
Reasons to Review Your Life Insurance Policy
As we have seen, there are many reasons to review your life insurance policy periodically. You should get in the habit of doing it once a year, especially under these circumstances:
- Changes to your marital status: If you have gotten married, divorced, or have been widowed, now is the time to review your insurance and decide if you want to broaden or reduce your coverage, or if you want to change your insurance category and transition to a more solid product.
- Your family grows: If your family grows and you have more children, or if you add dependents to the family unit, it is time to review your policy in order to include deeper and broader coverage. In the event that your family loses members, you might also make a downward revision to the coverage.
- Changes to your financial situation: If your finances change, you may need to adapt your life insurance to the change. For example, if you buy a house and underwrite a mortgage, it is a good idea to review your insurance so that the death benefit covers that debt if you die. The same goes if you take out a loan and die before paying it off. And, on the other hand, if you have already paid your debts, maybe you no longer need as much coverage and can reduce it.
- Your health improves. During qualification processes, higher premiums are often assumed as a result of a poor health status. This may even be due to simply being overweight. If, overtime your health improves, you are relieved of some ailment, or you manage to lose weight, it is a good time to ask to review your policy and save money.
- Occupational changes: Getting a job, or a raise, can improve your financial situation and allow you to access better coverage. On the other hand, if you lose your job, you may want to reconsider how much you pay. And above all, if you have group life insurance and you are fired, make sure to consider what will happen to that policy. The most common outcome is that you will lose it, but you may be able to keep it for a small amount of money and restructure it according to your needs.
- Renewing your beneficiaries. Big changes in your life (births of children, weddings, divorces, deaths) often mean you will need to renew your list of beneficiaries. You can do this at any time, but remember to always notify the beneficiaries of these changes. In addition, remember that you can create a trust fund to manage the insurance money. Take a good look at this option, because it can offer fiscal advantages, better protect your legacy, allow you to easily build an inheritance, and even help you make charitable donations.
- Concerns about your insurance company. Many people consider changing their insurance, even canceling it, if their insurance company is having financial problems or there is any uncertainty as to its solvency and solidity.
And you can see, the reasons for modifying your life insurance are many, and all of them are important. You must take the need to review your policy seriously and do so with discipline on a periodic basis. You will see that in the long term, you will either save money or have a product that is much better adapted to your needs.