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life insurance review - life milestones

How Often to Update Your Life Insurance Policy

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When was your last life insurance review? Many policies in Canada go unreviewed after purchase, leaving doubts about your loved ones’ full protection. Life is unpredictable, and regularly reviewing your policy is crucial to ensure it meets current needs. 

This article emphasizes the importance of staying updated, closing coverage gaps, and finding the best protection for your family. Let’s make sure your life insurance is ready for whatever life brings.

Key Takeaways

  • Life circumstances such as marriage, divorce, birth, or death may require adjustments to your life insurance coverage.
  • Changes in employment, such as a raise, demotion, or loss of job, should be considered when reviewing your life insurance needs.
  • Changes in net worth, such as taking on a mortgage or receiving a windfall, may necessitate an increase or reevaluation of your coverage.
  • Health changes, both for yourself and your family members, should be taken into account when reviewing your life insurance to ensure adequate protection.

Life Events That Require Policy Review

Change in Family Dynamics

Marriage: Marriage is a lifelong commitment with financial responsibilities. As the primary breadwinner, consider life insurance to ensure financial support for your spouse in case of your untimely passing. Discuss the needed coverage with your spouse to meet their financial needs.

Birth: It’s crucial to review your life insurance coverage to ensure that your child will be well taken care of if something happens to you. This may involve providing income until they reach adulthood and setting up an education fund to secure their future.

Separation or Divorce: Before making any hasty decisions, consider future scenarios like the possibility of remarrying. Will you still be able to obtain life insurance coverage at the same favorable rates? It’s important to assess your changing life insurance needs and future insurability before canceling a policy.

Death: The loss of a loved one significantly changes the dynamics of your family. With one less person to support, your financial obligations may be reduced, and so may your need for life insurance. 

Improved Wealth or A Better Financial Position

life insurance review - improved net worth

If you’re not aware yet, there are only two asset classes that you can pass on to your next generation that don’t trigger tax events at death.

  1. Your Primary Residence
  2. Life Insurance Death Benefits

An increase in net worth means that you now have more assets to pass on to your children or heirs, protecting these assets against hefty tax bills at death makes it a point that you more of your hard-earned wealth to your loved ones.

Mind you, all of our assets, except our primary residence are all considered to have been sold at fair market value right before your last breath!

We help clients transfer their wealth tax-efficiently or magnify their wealth at death through well-planned, cash-value-earning life insurance policies.

The Importance of Regular Life Insurance Reviews

Employment And/Or Career Changes

Life insurance coverage is an essential aspect of providing financial protection for your loved ones. Here’s a guide to help you navigate these changes and make informed decisions:

1. Promotion/Raise: Congratulations on your career advancement! With an increase in income, it is wise to consider adjusting your life insurance coverage to reflect your new financial situation. 

2. Demotion: Decreasing your coverage to align with your reduced income can help ensure that you’re not paying unnecessary premiums for coverage that surpasses your current needs.

3. Job Loss: Instead of canceling your coverage altogether, you may need to adjust it to reflect your new financial situation. This could involve reducing your coverage, and your contribution, applying for a premium holiday to align with your current financial situation.

4. Starting a New Business: You may need to consider increasing your coverage to account for potential business debts, loans, or responsibilities to partners or investors. Safeguarding your family’s financial well-being in case of unforeseen circumstances becomes crucial during this transitional phase.

5. Transitioning Careers: Depending on the changes in your financial situation, you may need to increase or decrease your coverage accordingly.

By regularly reviewing and adapting your life insurance coverage to changes in your employment, you can ensure that your loved ones are financially safeguarded no matter what life throws your way.

Health Conditions or Illnesses

Illnesses or worsened health conditions can have a significant impact on your insurability, potentially making it difficult to obtain coverage.

If you currently have a term policy, it may be wise to consider converting it (or part of it) to a permanent insurance policy. This would ensure that you have coverage in place even if your health declines. By converting to a permanent policy, you lock in your insurability and provide long-term protection for your loved ones.

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Factors to Consider During Life Insurance Review

Regularly reviewing your life insurance is vital to ensure its effectiveness and alignment with changing needs. Discussing policy exclusions is crucial, as understanding limitations is key to maintaining adequate coverage. 

Additionally, consider the role of life insurance in estate planning and wealth transfer, ensuring financial security for beneficiaries and a smooth asset transfer. Periodic reviews allow adjustments to align your policy with evolving estate planning goals.

It is important to assess the coverage provided by the policy and evaluate whether it meets your financial obligations. Additionally, you should consider the policy’s cash value and potential for growth, as well as the impact of inflation on the coverage. 

Examine whether the policy aligns with your current financial goals and review the premium payments to ensure they are affordable for your budget. To help you understand these factors better, here is a table that summarizes the key considerations during your life insurance review:

Factors to Consider Description
Assessing coverage Evaluate whether the policy provides enough coverage for your financial needs.
Evaluating affordability Review the premium payments to ensure they fit within your budget.
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Benefits of Reviewing Life Insurance Regularly

By regularly reviewing your life insurance, you can ensure that it aligns with your changing needs and provides optimal protection. Here are three benefits of reviewing your life insurance regularly:

  1. Maximizing coverage: Life circumstances can change, such as getting married or having children, which may require adjustments to your policy. Regularly reviewing your life insurance allows you to identify any gaps in coverage and make necessary updates to better protect your loved ones.

  2. Identifying cost savings: Conducting regular reviews of your life insurance policy enables you to identify potential cost savings. You may discover new insurance products or features that offer better coverage options at a more affordable price. By staying informed and comparing different policies, you can ensure you’re getting the most value out of your life insurance.

  3. Peace of mind: Keeping up with policy reviews provides peace of mind, knowing that your financial protection is up to date. By reviewing your life insurance regularly, you can rest assured that it continues to align with your personal and financial changes, maximizing its benefits and providing you with the security you and your loved ones deserve.

Common Triggers for Life Insurance Review

If you experience a major life event, such as getting married or having a child, it’s important to consider whether your life insurance policy needs to be updated. These events can serve as common triggers for life insurance review.

The birth of a child, for example, may require increased coverage to ensure their financial future. As you start planning for retirement, it’s also a good time to review your life insurance policy. Retirement planning often involves assessing your financial needs and obligations, and updating your life insurance coverage can help ensure that you have adequate protection for yourself and your loved ones.

Frequently Asked Questions

How Often Should I Review My Life Insurance Policy?

You should review your life insurance policy regularly to stay up to date. Assess your coverage needs based on life changes like marriage, birth, or employment, and consult a professional for guidance.

What Are the Consequences of Not Reviewing My Life Insurance Policy Regularly?

Neglecting life insurance review can have serious consequences. Regular evaluation ensures your policy aligns with changing needs, identifies gaps in coverage, and maximizes protection. Don’t overlook the importance of reviewing for optimal peace of mind.

Are There Any Tax Implications Associated With Reviewing and Updating My Life Insurance Policy?

There are potential tax implications associated with updating your life insurance policy. It’s important to review your policy regularly to ensure it aligns with your financial goals and to address any potential tax consequences.

Can I Make Changes to My Life Insurance Policy at Any Time, or Are There Specific Timeframes or Restrictions?

You can make changes to your life insurance policy at any time. Reviewing your policy regularly ensures it aligns with your changing needs. Consider consulting with a financial advisor or insurance professional to make informed decisions.

What Are Some Common Mistakes People Make When Reviewing Their Life Insurance Policies?

When reviewing your life insurance, common mistakes include overlooking changes in family or financial circumstances, not assessing coverage adequacy, and failing to consider policy performance. Avoid these by staying informed and seeking professional guidance.

Conclusion

As life constantly evolves, it’s crucial to regularly review your life insurance coverage to ensure it aligns with your changing needs. By examining factors such as family structure, employment, net worth, health, and risk management goals, you can identify any gaps in coverage and make necessary adjustments.

By taking the time to review your policy, you can provide optimal protection for your loved ones and gain peace of mind. If you’re not currently working with a financial advisor and have existing life insurance that needs to be reviewed, don’t hesitate to reach out to us. We’ll help you review your life insurance to make sure that it stays up to date and fully safeguards your family’s financial well-being.

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