Life changes, insurance should too
When and why to review your life insurance
Because life insurance is a safety net for your family and finances, it needs to match your family and financial circumstances to be effective. The amount of cover you need changes over time, depending on your income, your debt level, your lifestyle, and the number of people you’re responsible for. If these factors change, your life insurance should change as well.
It’s a good idea to review your life insurance cover every year. You’ll probably receive a letter from your provider on the anniversary of your policy start, and it’s also smart to check and update your policy when you’re faced with a major life change. Otherwise, you could be left with too little coverage if the worst happens – or you could end up paying for cover you don’t need.
Here’s when to adjust your cover:
Relationship changes
Getting married or moving in with a committed partner means you’re no longer responsible for just yourself. That’s why many people choose to take on life insurance when they get married or buy a house with a partner – it offers assurance that essential costs will be covered if tragedy strikes.
On the other hand, if you split up with a partner or divorce your spouse, you no longer need to provide for them, which could mean cancelling your life insurance policy or changing the beneficiaries.
Baby on board
Life insurance offers great peace of mind when you have dependants, especially if one partner takes time off work to care for the baby. If you have a baby on the way – whether it’s your first or fifth – it’s a good idea to review your existing insurance if you have it, or buy a policy if you don’t. Make sure your insurance is enough to cover the mortgage and to help the remaining partner pay for ongoing expenses. Some parents also consider future costs such as private school fees and tertiary education.
Career changes
Career changes can be positive, negative, or neutral. Think promotions and new jobs, job losses and redundancies, and retraining or leaving the workforce. If you or your partner have a major job change, your life insurance may need to change too. If your household income has increased significantly, you may need extra cover to keep up with expenses if the worst happens. During a temporary situation like maternity leave or retraining, raising your cover could help give the non-working partner peace of mind.
Upgrading or downsizing
Most people want their life insurance to cover their remaining mortgage if they pass away. That’s why it’s particularly important to review your coverage if you buy a property or move house. A bigger house usually means a bigger mortgage and more insurance cover. On the other hand, if you’re downsizing your mortgage might decrease or disappear altogether – so you’ll need less cover.
Finally mortgage-free
It may be hard to imagine, but one day your mortgage will be paid. When this happens, your life insurance needs to change drastically. You may still choose to maintain a life insurance policy to pay for living costs, but you no longer need that lump sum to pay off the mortgage.
Leaving the nest
Eventually, those little babies will grow up and become independent. When that happens, your life insurance needs generally decrease. Although some people like to retain a policy so their children and spouse get a pay-out when they pass away, this is more of a nice-to-have than an essential.
Sickness and health
Health changes and diagnoses may also affect your life insurance needs. Although insurers can’t raise your premiums based on health issues that develop after your policy starts, you may choose to increase your cover if you get a life-changing diagnosis.
If you’re a smoker, you’ll generally pay a higher premium than a non-smoker. But if you give up smoking and keep it up for a year, most insurers will drop your premium to non-smoker level. Some life insurance providers also offer lower premiums based on health and fitness metrics like blood pressure, but this isn’t common in New Zealand.
Keeping up with life changes
Life insurance is meant to fit your life, so it’s important to keep it on track with major life changes. Review your policy once a year, and check your level of cover whenever something new comes along – kids, partners, houses, jobs, health issues. It’s about looking after your loved ones, even if you’re no longer around.
If you’re not sure about the appropriate level of cover for your family and financial situation, have a chat with one of the insurance experts at Global Finance for advice.