How To Boost Your Life Insurance Coverage

Life insurance is an important investment to protect your loved ones financially in the event of your death. While it's a good idea to have a policy in place, it's also important to regularly review your coverage, especially when you experience significant life changes. Here are some scenarios where you may want to consider increasing your life insurance coverage:

- Your work policy isn't enough: If you only have basic life insurance through your employer, it may not provide sufficient coverage for your family's needs in the long term.

- You're making more money: If your salary has increased, you may want to raise your coverage to maintain your current standard of living and protect your loved ones' financial future.

- You've hit a traditional life milestone: Major life events like getting married, having children, or buying a home typically increase financial responsibilities and long-term debt. Increasing your life insurance can provide extra protection to cover these expenses.

- You have long-term debt: If you have significant long-term debt, such as student loans, increasing your coverage can help ensure that your beneficiaries aren't burdened with financial headaches.

- Your partner is no longer working: If your household relies on two incomes, and one spouse or partner stops working, increasing your coverage can provide added security.

- You're taking on additional financial responsibilities: If you're being relied on for new expenses, such as college costs or car loans, boosting your coverage can help cover these expenses in the event of your death.

- Your long-term plans have changed: If you find yourself supporting someone you hadn't planned for, such as an aging parent or a family member with an illness, increasing your coverage can provide extra peace of mind.

It's worth noting that there are different strategies for increasing your life insurance coverage. You can convert your term policy to a whole life policy, purchase additional term policies, or explore alternatives like raising your coverage limit or adding life insurance riders.

Converting a term policy to a whole life policy

No Medical Exam Required

Converting a term life insurance policy to a whole life policy can often be done without a medical exam. This is a significant benefit, as many people decide against getting life insurance or select the minimum amount of coverage to avoid the mandatory medical exam. With a conversion, your new premium will be based on the rate class from when you originally purchased your term coverage.

Peace of Mind

Term life insurance provides adequate coverage, but there is an expiration date on the policy, and premiums can increase substantially when it's time to renew. Whole life insurance provides long-term peace of mind as it offers protection for life as long as you pay your premium when due, and your premium stays the same for as long as you keep your policy.

Cash Value Accumulation

Premiums are higher for whole life insurance, but there is a significant upside: Cash value accumulates in the policy and grows tax-deferred. Whole life policyholders are also eligible to receive dividends, which can be taken in cash, used to help pay premiums, or used to purchase more insurance. The cash value of your whole life policy can be accessed to help with major expenses, like college tuition or a down payment on a house.

Flexibility

When converting to whole life insurance, you have options and flexibility in how you choose to convert to permanent coverage. You can decide on the amount of whole life you can afford and keep the remainder of your term coverage in place, so you don’t find yourself underinsured. Keep in mind that your premiums will increase when you eventually convert your full coverage to whole life.

Change in Health

Converting a term life insurance policy to a whole life policy allows you to extend your coverage without going through the underwriting process. This can be valuable if your health changes for the worse. If you wanted to get a new term life policy to extend your coverage, you would likely have to pay astronomical rates or could even be uninsurable. But if you convert, your current health won’t affect the premium on a whole life policy or your insurability.

Budget Change

You might have wanted to buy a whole life policy from the get-go but couldn’t afford the higher premium. If your budget has changed and you’re making more money now, it can make sense to convert if the higher premium on a whole life policy fits within your budget.

Buying a new policy

Buying a new life insurance policy is a good idea if your current policy does not match your coverage needs. You can also convert your term policy to a whole life policy or buy a new one. It is common for people to have more than one life insurance policy.

• Your work policy isn't enough: If you have life insurance coverage via your employer, do a realistic review of the coverage provided. If it's just basic life insurance, you should consider increasing the coverage you have.
• You're making more money: If your coverage was previously limited to what you could afford, and now you can afford more, you should consider increasing the amount.
• You've hit a traditional life milestone: If you've recently gotten married, had a child, or bought a house, you should increase your life insurance coverage.
• You have long-term debt: If you have student loan debt or other long-term debt that could saddle your beneficiaries with financial headaches, you should consider increasing your life insurance coverage to pay off what's outstanding.
• Your partner is no longer working: If you've decided that one partner will stay home to take care of your children, it's still important for both of you to have a life insurance policy.
• You're taking on additional financial responsibilities: If you're being relied on financially for new expenses, such as college costs or a new car loan, you should boost your coverage to make up for those expenses in the event of your death.
• You have a growing family: If you're growing your family and want extra financial protection for your kids until they become adults, you might consider buying a second term life insurance policy.
• You're paying off a mortgage or loan: This may offer financial support to cover your debts if you were to die before a loan is paid off.

If you're considering buying a new life insurance policy, it's important to work with a licensed financial advisor to ensure that you have the right coverage for your needs and budget.

Increasing the death benefit

Many term life insurance contracts are written with a level death benefit, a renewable term, and non-cancelable coverage. While your premiums don't increase as you age, and your contract remains in force as long as you pay the premiums, your coverage also doesn't increase, even with high inflation.

Another type of term coverage renews annually, offering lower initial costs but increasing premiums each year as the policyholder ages, while the death benefit remains the same.

Term life insurance contracts with increasing term policies allow you to add to your death benefit by a certain amount or percentage at specified times without medical underwriting. Decreasing term policies, on the other hand, allow you to reduce your coverage and premiums over time.

• Buying big in anticipation of future needs: The younger and healthier you are, the larger the death benefit you can purchase for the same premium. Consider future financial responsibilities and buy more coverage than you currently need to account for them.
• Purchasing an additional term policy to ladder your coverage: Instead of trying to estimate your future coverage needs and paying higher premiums, you can purchase more than one term life insurance contract to align your coverage with your needs and budget. You can purchase policies with different terms and death benefits, either at the same time or at different ages.
• Converting your term policy to a permanent policy: Convert your term insurance to permanent insurance to benefit from lower premiums and the option to lock in a death benefit for the rest of your life, even if your health declines. Converting your policy will increase your premiums, but you won't need to pass another medical exam.
• Extend your coverage for additional reassurance: Consider your long-term plans and financial responsibilities, and extend your coverage to ensure your loved ones are protected.

Buying for specific life events

Life insurance is a financial safety net that provides a sum of money to select beneficiaries following the death of the policyholder. It is recommended that you review your life insurance policy annually or whenever you experience a significant life event. Here are some scenarios in which you should consider raising your life insurance coverage:

Your family is growing

If you've recently gotten married, had a child, or bought a house, you should increase your life insurance coverage. As your life changes and the bills and responsibilities rise, you'll want to make sure that you have life insurance for a commensurate amount. For example, if you were single, life insurance for an individual earner would suffice. But if you're now married, you'll want protection for two. Increase it again for each child you have.

You're making more money

If you've gotten a raise, you may want to raise your coverage accordingly. If the coverage you previously had was limited to what you could afford, and now you can afford more, you should probably consider increasing the amount. Also, if the new salary has caused adjustments to your standard of living, you're going to need protection to ensure that these can be paid in your absence.

You have long-term debt

Home purchases aren't the only type of long-term debt that could necessitate an increase in life insurance coverage. If you have student loan debt, for example, it may make sense to have life insurance coverage in an amount that could cover what you owe. This would also apply to other traditional debts. If they're significant, have a long shelf life, and could saddle your beneficiaries with financial headaches, then it's probably worth increasing your coverage.

Your partner is no longer working

If your spouse or partner is no longer employed, you should think about bumping up your life insurance protection. Two salaries and two insurance policies are better than one. Should you reduce or eliminate one of those, you'll want to make sure you have a commensurate level of protection by increasing the amount of life insurance you have.

You're taking on additional financial responsibilities

If you're being relied on financially for new expenses, such as college costs or new car loans, then you'll want to boost your coverage to make up for those expenses in the event of your death.

Your long-term plans have changed

Are you taking care of (and financially supporting) someone that you weren't planning on helping? It may be smart to increase your coverage amount to cover the gap you could potentially leave. Speak with a life insurance expert who can help you determine if this makes sense for you.

Raising the coverage limit

Raising your coverage limit will increase your premium, and you may be subject to medical underwriting, which will evaluate your health to determine whether to approve the request and how much extra to charge.

If you have a term life insurance policy, you may be able to increase your coverage without having to reapply. This is known as an increasing term policy, and it is less common than level term policies. With an increasing term policy, your death benefit and payments increase over time. This type of policy can be more expensive than level term plans, but it can also provide extra protection as your expenses grow.

If you have a level term policy, you can consider adding an inflation rider to protect your death benefit from inflation.

Frequently asked questions