The life events that mean it's time to review your life cover
5 min read
A series of life events offer a good opportunity to review your life insurance cover.
Life insurance is a crucial protection product for anybody with dependents, as it provides a financial safety net for those loved ones should the worst happen. But that doesn’t mean that simply taking out a policy is enough. The needs of your dependents may change over time. Therefore the level of cover that you have may also need to shift.
For many of us, getting married includes promising to love that other person ‘for richer, for poorer'. But if you die, there is a danger that your partner will could be left with financial worries.
As a result, tying the knot is a useful point at which to review your life insurance. You will want to consider whether the policy is not only enough to clear any large debts you have together ‒ such as a mortgage ‒ but also whether it provides the surviving partner with enough money to make a fresh start.
Getting onto the housing ladder
Buying a property is an enormous financial commitment. With most of us relying on a mortgage in order to purchase our homes, that means taking on a significant amount of debt. It’s also a debt that’s often shared with someone else, for example, a partner or close friend.
Life insurance can be useful in this instance. You want to ensure that the cover you have in place will not leave your fellow borrower in financial difficulties in trying to pay off that home loan without you being able to contribute any more.
As a result, reviewing your life insurance is not just important when you first get onto the housing ladder, but in all subsequent moves as well.
If you move up the ladder, and take on a larger mortgage loan, you might want to consider increasing your life cover so that it is enough to pay off that larger debt mortgage in the event that a claim is necessary.
There are all sorts of expenses that come with raising children. These range from the basics like food and clothes, to school trips and presents for birthday parties. It all adds up, and can cause enormous financial difficulties for two working parents - let alone one parent trying to raise a child after the death of their partner.
As a result, having a child is an important point at which to review your life insurance cover. This should be repeated if you have more children too. With the costs your family faces only likely to increase, it may be necessary to increase the level of protection you have in place.
You may also want to review the cover in place when those children grow up and leave the family home. For example, your partner may not need the same level of financial support if you pass away once the kids have flown the nest as they did when they were still at school.
It’s not uncommon for your employer to offer death in service benefit as a perk for employees. As the name suggests, this means that if you die while an employee of the business, your loved ones will receive a payout.
This is generally calculated as a multiple of your annual salary, though the amount does vary between different jobs and industries.
It’s worth taking this benefit into account when arranging your cover initially. At the same time, job moves should prompt a review of your total level of protection. For example, while your new employer might offer a higher annual salary, they may offer a lower level of death-in-service benefit. As a result, you might want to amend the level of protection included in your life insurance policy.
A big increase in salary may also mean it’s time to review your life cover. It may be that your family have become accustomed to a more comfortable way of living. By ensuring the level of cover you have, you can ensure that they can continue to enjoy that way of life even if you pass away.
Your retirement is an ideal opportunity to review your life insurance cover.
Do you still have financial dependents? If so, what sort of payout would they need to get by should you die? It may be that retirement is a timely point at which to reduce the level of cover you enjoy, particularly if the mortgage has now been paid off.
John Fitzsimons has been writing about money for more than a decade, as editor of the B2B magazine Mortgage Solutions and then personal finance website loveMONEY. Since going freelance, he has written for the likes of the Sunday Times, Forbes, the Mirror, the Sun, and Moneywise.
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