When you decide to get life insurance, you’re essentially looking beyond yourself. You understand that a life insurance policy is necessary to protect your family after you’re gone. Making a mistake with life insurance can hurt the ones you love most. Fortunately, with some advance preparation and careful thought, you can help avoid these costly errors.
Sometimes, however, circumstances change, and you have to make changes to your life insurance policy to ensure your goals are achieved.
Like everything else in your financial life, life insurance isn’t a one-and-done proposition. It’s very important to review your policy occasionally to help make sure it still meets your needs. In the worst cases, an out-of-date insurance policy can lead to problems for your family when they need help the most.
The life events that should definitely trigger an insurance review are marriage, divorce, the birth of a child, paying off the mortgage, and retirement.
Here are several matters to consider periodically if you have a long-standing life insurance policy:
Ideally, if you’re approaching retirement or have already retired, you should have paid off your home mortgage. Traditionally, lower retirement incomes can make mortgage payments difficult. However, mortgage and other debt is becoming increasingly commonplace among older Americans.[i] In fact, research shows debt levels among retirees over the age of 75 have risen by nearly 20% between 2007 and 2016. Mortgage debt has nearly doubled in the past 20 years.
Financial analysts say eliminating mortgages should be a top priority before retiring.[ii] Without a mortgage you may decide to lower your policy’s face amount—and your premiums—since you won’t need the higher life insurance policy proceeds. The additional income—and lower monthly expenses—will make for more manageable retirement budgets.
Sometimes tragedy or misfortune requires you to become your grandchildren’s guardians. More than 6 million children in the United States live with at least one grandparent, which is 9% of the population of children in the country. That’s 56% of children who are not living with their parents.[iii] Reviewing your life insurance policy coverage, which may include adding your new dependents, may help secure your grandchildren’s future.
Although today’s retirees live longer, the divorce rate among older Americans is climbing. Called “gray divorces,” the rate among people 65 and older has nearly tripled since 1990.[iv] Changes in your marital status may require you to change your beneficiary designations or reduce your coverage. Former spouses generally don’t need the higher protections under joint policies.
On the other side of the relationship fence are first-time marriages or remarriages. When you enter into a new relationship, you should revisit your policies (or buy new ones) to ensure your loved ones are insured. Most policies allow you to name primary and contingent beneficiaries.[v]
Life insurance is a critical tool in your financial life, and mistakes can be costly. One of the benefits of working with a financial professional is that he or she can review your entire situation and make recommendations about the role life insurance should play. If you’re ready to make changes to your life insurance policy, give us a call at 303-741-9772. We’re ready to help you make the most of your opportunities.