Life Insurance: Regular Updates For Peace Of Mind

Life insurance is often considered a one-time purchase, but it is essential to review and update it regularly to ensure it remains relevant to your circumstances. Life insurance policies can be changed, and it is recommended to do so when significant life events occur, such as getting married, having children, or buying a bigger home. Updating your life insurance ensures that your dependents receive adequate protection and that your policy aligns with your current financial situation and life stage. While some insurers offer flexibility, allowing changes to beneficiaries or coverage amounts, others have stricter rules. It is important to carefully review your policy and consult a financial advisor to navigate the complexities of life insurance updates and make informed decisions.

House move or remortgage

Life insurance is a financial product that should be updated when your life changes. A house move or remortgage is one such change. Here's what you need to know about updating your life insurance after moving house or remortgaging:

Increasing Your Cover

If you move to a bigger home or take on a larger mortgage, you should consider increasing your life insurance cover. This will ensure your dependents can pay off your new mortgage if anything happens to you. Review your policy and calculate if you have enough cover, then contact your insurer to discuss increasing your cover. Increasing your cover will likely result in higher premiums.

Adjusting Your Policy

When you move house or remortgage, it's essential to review your life insurance policy to ensure it still meets your needs. Check if your current policy can be adjusted to provide the necessary cover for your new circumstances. Contact your insurer to discuss your options and the steps required to adjust your policy. There may be fees or changes to your premiums associated with making adjustments.

Switching to a New Insurer

If your current insurer cannot provide the necessary cover or if you find a better deal elsewhere, you may consider switching to a new insurer. Shop around and compare life insurance policies to find the best cover for your new circumstances. When switching insurers, ensure there is no gap in your cover by starting the new policy before ending the old one. Additionally, review the price of premiums before making the switch, as taking out life insurance tends to become more expensive as you age.

Avoiding Common Pitfalls

When updating your life insurance after a house move or remortgage, it's important to avoid common pitfalls. Ensure your new policy provides adequate cover for your mortgage and other financial responsibilities. Also, be mindful of any changes to your premiums, as increasing your cover will likely result in higher premiums. Finally, review your policy documents carefully and understand any fees or changes to your cover before making any adjustments.

In conclusion, updating your life insurance after a house move or remortgage is essential to ensure your policy reflects your new circumstances. Review your cover, calculate your needs, and make the necessary adjustments to protect your dependents and provide peace of mind.

Paid off mortgage

Paying off your mortgage is a significant financial milestone. But what happens to your life insurance policy?

The insurance policy is completely separate from your mortgage, so it doesn't automatically come to an end. You have a few options:

• Continue with your life insurance policy: The sum assured, initially intended to cover your mortgage, can now act as a financial safety net for your family.
• Convert your policy: Some policies can be converted into another type of life insurance, such as a whole-life policy or a different type of term assurance. This could provide broader coverage but at a higher premium.
• Cancel the policy: If you feel you no longer need life insurance cover, you can opt to cancel it. However, consider your options carefully before doing so, as it cannot be reversed.

The options available to you depend on the type of life insurance policy you hold. Common types include:

• Decreasing term insurance: Also known as mortgage protection insurance, this policy is often matched with a repayment mortgage. The sum assured decreases over time, in line with your mortgage balance. If your mortgage is paid off early, you can continue the policy, but the sum assured will continue to decrease annually.
• Level term insurance: The sum assured remains constant throughout the policy term and can be used to protect any type of repayment method. You can continue the policy for general life cover, and the sum assured will stay the same.
• Whole of life insurance: This policy covers you for your entire life and offers longer protection, but it is more expensive, with increasing premiums as you get older. Since this policy is for life, it continues even after your mortgage is paid off, and the sum assured can be used for other financial needs or as an inheritance.

Before making any decisions, check whether your life insurance plan has accumulated any cash value, savings, or investments. Some types, like whole-life insurance, have this feature. If your policy has a substantial cash-in value, you may want to keep it and withdraw or borrow the cash amount as supplemental retirement income. You can also use the cash value to reduce future premium costs or convert the policy type to fit your new needs while maintaining the cash value.

Even without a specific debt to cover, the death benefit from life insurance could still be useful. It could help replace your lost income, fund college savings for children, cover final expenses and funeral costs, or be left as an inheritance or gift. If you still have financial obligations, maintaining coverage is advisable. You can usually reduce the amount of insurance needed, but cancelling entirely may leave loved ones vulnerable.

Marriage or divorce

Marriage

Getting married is considered a "Qualifying Life Event", which means you can make changes to your current insurance coverage or enroll in a new plan without waiting for a regular enrollment period. Marriage changes your financial situation and responsibilities, so it's a good idea to review your insurance policies to ensure they fit your new circumstances. Here are some steps you can take:

• Update your beneficiaries: Review and update beneficiaries on policies like life insurance, auto insurance, health insurance, etc. In community property states, your spouse may need to waive their right to a life insurance payout if you want to designate someone else as the beneficiary.
• Explore combined coverage: Consider combining insurance policies to reduce costs and streamline coverage. For example, you may save money by switching to a single policy for multiple cars.
• Look at increasing coverage amounts: You may need more insurance now that you're married, especially if you're planning to have children or buy a house. Consider disability insurance or additional life insurance to protect your income and provide financial stability for your spouse if something happens to you.
• Review deductibles: Review the deductibles on your insurance policies, such as auto, homeowner's, or renter's insurance. Increasing your deductibles can be a quick way to lower your insurance premiums.
• Consult an advisor: Work with a financial advisor to understand how your insurance coverage impacts your financial goals and ensure you're adequately protected.

Divorce

Divorce can significantly impact your life insurance needs. It's important to review and update your life insurance policy to reflect your new circumstances. Here are some key considerations:

• Update beneficiaries: Most people list their spouse as the primary beneficiary on their life insurance policy. After a divorce, you may want to change this, especially if you have children or other dependents. If you have minor children, consider creating a trust to manage the distribution of policy proceeds among them.
• Account for cash value: If you have a permanent life insurance policy with a cash value component, this may be considered a marital asset and subject to division during the divorce. Contact your insurance company to determine the cash value and discuss your options, such as cashing out the policy and splitting the proceeds.
• Protect alimony and child support: If you receive alimony or child support payments, consider taking out a life insurance policy on your ex-spouse to protect this income stream. Choose a benefit amount that will replace these payments until your children are financially independent.
• Court-ordered life insurance: In some cases, the court may order one or both parties to purchase life insurance as part of the divorce settlement, especially if there are minor children involved. This is done to provide financial protection for the ex-spouse and dependent children.
• Determine if the policy is a marital asset: In some cases, the life insurance policy itself may be considered a marital asset and may need to be divided or cancelled as part of the divorce settlement. Consult with a financial professional or legal expert to understand your specific situation.

Rising property value

A rise in your property's value may mean that your home's value exceeds your homeowners insurance coverage limit. This could result in your dependents having to pay a 40% inheritance tax (IHT) if your estate is worth more than £325,000. This threshold rises to £500,000 for children and grandchildren if you have a family home to bequeath. Therefore, as your home's value rises, you may want to increase your life insurance cover to reduce the IHT burden of your dependents.

However, it is important to note that the primary consideration for knowing when to increase your homeowners insurance is your home's estimated market and replacement values. If the current cost of building supplies and labour to repair or replace your property is higher than your policy limit, you likely need more coverage.

Additionally, it is worth mentioning that some homeowners policies may include inflation guard coverage, which automatically increases the amount of insurance on your home by about 2-3% each year to account for inflationary pressures on construction costs.

Overall, it is a good idea to periodically review your life insurance policy to ensure it is up-to-date and fit for purpose, especially after major life events or changes in your property value.

Change in health

A change in your health is a significant life event that can impact your health insurance. Such events allow you to update your insurance outside the usual enrollment period. This is known as a Special Enrollment Period (SEP).

During a Special Enrollment Period, you can change who is covered on your plan or change the plan itself. You may be able to add a dependent or choose a new plan.

If you experience a change in health, you will typically have 30 to 60 days during the special enrollment period to make changes to your insurance. However, it is important to act quickly as you may need to submit documents to confirm your qualifying life event.

It is worth noting that each plan has its own guidelines on how to handle changes. Therefore, it is recommended to reach out to your plan administrator to understand your options.

Other examples of qualifying life events include:

• Aging out of your parents' plan
• Losing a loved one
• Welcoming a new family member
• Moving to a new area
• Losing your job

Frequently asked questions