You have life insurance. And you have the peace of mind that comes from knowing if something were to happen to you, your family would be cared for financially.
But of all the types of insurance out there, life insurance may be the easiest to set and forget. After all, who wants to revisit plans for one's own death?
But it's a good idea to put a few minutes on your calendar each year for an annual review. Even though your policy coverage is meant to protect you for a long time, that doesn't mean you won't benefit from a quick and easy regular check-up. You've already navigated the difficult life insurance conversation. This time around, the goal is to uncover any gaps in your plan or to find ways to save money.
Why should I review my life insurance policy annually?
As your life changes and your family responsibilities shift, you may need to plan for significant life events that can impact your financial security and well-being. This may include making changes to your life insurance.
Given that life is not on autopilot, it's best to review your policy needs at least annually and following things like:
- Getting married.
- Going through divorce.
- Buying a house.
- Having or adopting a child.
- Losing a loved one.
- Changing jobs.
- Starting a new business.
- Deploying.
- Taking on more debt.
- Retiring.
- Receiving an inheritance.
Here's an example: Anna enters the military at age 18 and signs up for the full military benefit of Servicemembers Group Life Insurance Opens in a New Window. See note 1 She's single with no kids and no debt.
Five years later, Anna gets married and starts a family. She isn't sure how long she'll stay in the military, so she buys a 20-year private term life insurance policy with $500,000 coverage in case she gets out.
On her 30th birthday, Anna decides to make a career out of the military because she takes an assignment that allows her to settle down and buy her first home. Life is busy, and life insurance isn't on her radar. Plus, she knows she has full SGLI and a separate policy. If something were to happen to her, Anna feels confident her coverage is adequate.
Fast-forward eight years, and Anna's retiring from the military. She has two children and owes $375,000 on her house. Her auto loans total $45,000, and her civilian job pays $80,000. These life changes mean that Anna's life insurance need is far more than when she first started out.
But when she retires, she'll lose her full SGLI benefit and will be left with a death benefit of $500,000. Because she bought a 20-year term policy, Anna only has five more years of level premiums, then she may be forced to pay more or get less coverage. And during her military career, she developed some health concerns that will make getting a new policy expensive.
Anna feels stuck. She still has a young family that's relying on her to provide for them financially, and she may soon be lacking the right amount of coverage at a price she can afford.
Anna's situation isn't uncommon among service members. Whether or not you're a member of the military, life is hard to predict. That's why it's important to take a little time each year to review your life insurance.
How should I review my life insurance policy?
First, add “life insurance review” to your digital calendar and set it to repeat every year. Then when it's due, you can cross it off your to-do list in two easy steps.
Insurance policy review checklist
Step 1: Review your coverage needs.
Have you had any major changes in your life over the past year like marriage, a new baby or a move? Do you have any current policies that will change or expire soon? If you answer no to both of these questions, you may be able to stop here.
But if you answer yes to either or both, take the next step.
Step 2: Make any necessary changes to your life insurance.
Now it's time to learn more about your options. Consider scheduling an appointment with your life insurance company or agent to talk through your life changes and how they might impact your needs. You can also figure out if you have the right amount of coverage by using online resources like a life insurance needs calculator.
Once you have a new game plan, you might need to get a quote, apply for new coverage and adjust your budget.
Important things to note
A change in need doesn't necessarily mean a change in policy.
Rather than losing the features of an existing policy, it may make sense to add a new policy or execute a policy rider. It could even mean adjusting group coverage or canceling one of several policies to reduce coverage.
Plan well ahead for expiring coverage.
A traditional life insurance application process generally takes four to eight weeks. That includes underwriting, the process an insurance company goes through to determine whether they will offer you life insurance, and how much it will cost.
Some insurers are making advancement in their process to include accelerated underwriting and policies that tout instant issue. But it doesn’t mean you should wait until the last minute to make your choice.
Also be aware that an offer from the insurer may not be the amount you asked for, and the insurance cost may change. Giving yourself time to pivot on plans can help you avoid any gaps in coverage.
Don't exchange or replace anything without due diligence.
If you're unsure about what you need, remember you can seek guidance from a qualified agent. Make sure you're satisfied with coverage amounts and costs before you make any changes or cancel any policies.
Life is a wild ride. For the same reasons you decided to get life insurance in the first place — to protect your loved ones — you'll also want to go over your policy once a year. It'll be well worth your time.
Review your life insurance needs today.
Talk to a USAA licensed life insurance agent.