The new year is the perfect time to review all things financial in your life. This includes your life insurance policies. Should you increase your life insurance in 2013? There’s a good chance you should, but only a review of both your current life insurance coverage and your needs will let you know that.
Review your coverage if you haven’t in a while
Life insurance policies should always be reviewed at least annually, but if you haven’t done so in previous years, now is a great time to start. Most people take a life insurance policy that’s the right amount when they took it, then they file it away and get on with life. If this is your pattern as well, 2013 will be a great time to pull the policy out and make sure that it matches up with your present needs.
If you took your policy out more than three or four years ago, chances are you’ll need to increase your life insurance. It’s important to remember that a life insurance policy offers a fixed death benefit. But after you take the policy, your expenses tend to grow almost automatically. It’s important to make sure that your life insurance coverage matches your current financial situation.
Inflation takes a toll on life insurance
Inflation silently but relentlessly causes your cost of living to rise over time. Even if everything else in your life stayed the same, your basic living expenses would rise, increasing your need for life insurance.
For example, in just the past five years the cost of living has risen by nearly 12%. In the past 10 years it’s risen by almost 29%. If you took a life insurance policy with a death benefit of $100,000, 10 years ago, it’s real value would only be about $71,000 today.
That’s just what inflation does to life insurance, even without any other changes in your life. But those changes can have an even bigger effect.
Life changes can require more insurance
There are major changes that take place in your life that can cause a greater need for life insurance.
Having children. Children are dependents of the highest order, which is to say that they are completely dependent upon you for support. Generally speaking, they are the single biggest reason why life insurance exists. If you’ve had one or more children since you took your last life insurance policy, it’s time to increase your life insurance.
A mortgage. Next to paying funeral expenses and medical costs, paying off a mortgage is one of the most important functions that life insurance covers. Even if you can’t afford enough insurance for your survivors to live on completely, if it’s at least sufficient to payoff the mortgage on your home, they will have an expensive home to live in forever. If you’ve purchased a home and taken a mortgage since you bought your last life insurance policy, you’ll need to increase your life insurance to cover the mortgage in the event of your death.
Higher income. This is a life change that almost no one notices. The most basic purpose of life insurance is to replace your income in the event of your death. The higher your income is, the more life insurance coverage you need. If your income is up substantially since you took out your last life insurance policy, it’s probably time to increase your coverage.
There may be a lower rate with an affiliate company
Here’s a reason to increase your life insurance that has nothing to do with any kind of life changes. Sometimes you can get less expensive life insurance through companies that you are affiliated with. If you can, then you can increase your life insurance without increasing your premiums, or at least not by much.
Some employers have arrangements with life insurance companies that enable their employees to get lower cost life insurance. This may happen because the employer, or the job types they typically have, have a better experience rating than average. Anxious to get lower risk customers, an insurance company may offer life insurance at a discount to employees of your company. Check with your human resources or benefits department to see if such an arrangement exists at your place of employment.
It’s sometimes possible to get lower cost life insurance through businesses that you are affiliated with. Think in terms of common organizations, such as Triple A (AAA) or the American Association of Retired Persons (AARP).
You may also be able to get less expensive life insurance from other insurance companies that you have other types of insurance with. Check with the insurance companies that you have your health insurance, auto insurance, or homeowners insurance with and see if you can get low cost life insurance as part of a bundle arrangement.
Make certain that you have enough life insurance coverage for your current needs. If you don’t, then check some of the sources above to see if you can increase your life insurance without dramatically increasing your premiums.