You are using an older browser version. Please use a supported version for the best MSN experience.

Why Is Reviewing Your Life Insurance Plan Important, And When Should You Do It?

BankBazaar.com logo BankBazaar.com 22-10-2020 Adhil Shetty
text © Provided by BankBazaar.com

A life insurance policy is one of the most important financial products that you buy for your family’s protection. It provides assurance to your family that they would be financially secured in the event of your untimely demise. Whether you choose a basic term life insurance plan with death benefits or a more comprehensive plan with riders such as critical illness benefits or return of premium on maturity, your life insurance policy will ensure that your family is well provided for in your absence.

However, choosing the right policy and paying its premium regularly does not mean that you don’t have to think about coverage ever again. You must revisit your life insurance coverage at various points as and when your life situation, income, and responsibilities change. Ideally, you should review your life insurance needs once a year, or whenever your life situation has changed through events such as marriage or the birth of a child.

Take a look at a few events when you should review your life insurance plan regularly:

When You Family Grows 

Your regular expenses and insurance needs change with changes to your family. The change could be marriage, having a child, your retired parents moving in with you, or some other significant change. Reviewing your coverage and improving it will ensure that the needs of all your dependents are taken care of in the unfortunate event of your death. Ideally, working individuals should have a cover that’s at least 10 times their current annual income. So an individual with an income of Rs. 5 lakh should have a life insurance cover worth at least Rs. 50 lakh. You can also factor in your life insurance need using the Human Life Value (HLV) method. In this method you need to consider your current income, expenses, expected future responsibilities, and goals to determine the insurance need. You can take the help of any HLV calculator available online.

Change In Income 

When you have a steady increase in income over the years, it may be a good idea to review your life insurance coverage too as you may now be able to afford a higher premium which you may not have when you just started earning. A higher income may also result in a higher standard of living, and you don’t want your family to be deprived of that in your absence, and hence the need for a higher sum assured. Whenever there is a job loss, it is advisable to not pause your premium payments to stay protected. Insurance premiums should be paid on priority in order to cover your family. You could check with your insurer about changing the frequency of premium payment to be able to pay in instalments.

As Per The Inflation Rate

Inflation has an impact on the costs of living which increase with time. So what you thought to be a reasonable sum assured to meet your family’s expenses when you bought the policy may seem inadequate in a few years due to inflation. This is why it helps to review your policy every 2-3 years and boost the coverage as per your need. For instance, if you are buying a term insurance cover, it should be good enough to replace your income to help your family sustain its most recent lifestyle.

Change In Liabilities

It goes without saying that as you grow older, your liabilities increase. Perhaps when you signed up for the life insurance policy, you only had a vehicle loan to repay but now have a home loan as well (or an education loan for your children). You should assess if the sum assured of your life insurance policy can cover not just your family’s long-term income needs but also these pending liabilities after your death. If you have sizeable debts such as a home loan, consider buying additional life coverage to cover up for it. You could buy a loan protection plan or a regular term plan. This will keep your family from financial distress in the event of your untimely demise.

Finally

To summarize, a life insurance policy must provide adequate coverage to your beneficiaries so that they do not face financial stress in your death. It is equally important to ensure that the sum assured goes to the right beneficiaries. Reviewing your policy regularly will ensure that everything is in order for your peace of mind. So update your beneficiaries too along with the sum assured as and when you have life-changing events such as marriage, divorce, childbirth etc. Your insurance gradually changes with time, responsibilities and income. Therefore, analyse your most current need and tweak your coverage accordingly.

The writer is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.

More From BankBazaar.com

BankBazaar.com
BankBazaar.com
image beaconimage beaconimage beacon