When you get a life insurance policy. The policy is associated with a specific payout. Often, how much life insurance you need doesn’t remain steady throughout your life. Instead, as certain events occur, increasing your life insurance policy is generally a wise move. If you are wondering how you can figure out if you need more life insurance. Here are five signs that it may be time to up your policy.
1. A New Spouse or Child
When there is a new addition to your family, reevaluating your life insurance policy is a smart move. The payout would protect your family from financial hardship if you were to suddenly pass away, something that could be particularly crucial if you are the primary breadwinner.
A USDA report showed that raising a child that was born in 2015 would cost a middle-income family around $233,610 to $284,570 to rear. Thus, suggesting you don’t factor in the cost of college. If your spouse or the person designated as the child’s caregiver wouldn’t be able to support that expense. Your life insurance payout plays a big role in the child’s quality of life.
However, even if there aren’t children in the equation, getting married should trigger a life insurance reevaluation as well. If your spouse couldn’t maintain the same lifestyle if you passed away, adding more life insurance may be wise, giving them financial security and helping them avoid additional losses during a challenging time.
2. Getting a New Mortgage
Whether you purchase a new home or refinance your current one, a new mortgage should lead you to review your life insurance needs, particularly if you have a family. If keeping up with the payments would be too much for your family to shoulder if you passed away, without a life insurance policy payout, they may be forced out of their home.
By adding enough life insurance to help cover the payments or pay off the mortgage in full, you’re giving your family a safety net that can keep them in their home. That can provide them with a sense of relief during a hard period.
3. Starting a Business
Running a business can be incredibly expensive, at times to the point where your family may not be able to manage it if you pass away. If running the company becomes cost-prohibitive, your family may have little choice but to let the business go, even if it could bring them financial gains down the road.
Consider whether your business costs could negatively impact your spouse or children if you were no longer there. If so, then adding more life insurance may be a great move. It would ensure they could maintain operations while they determine next steps, preventing them from losing the business and what it could offer long-term simply because they couldn’t run it today.
4. Getting a Raise
Usually, one of the main goals a person has when buying insurance is to replace lost income for their household. As a result, life insurance policies are often based on the amount a person was earning at the time the policy was purchased.
If you’ve had a significant increase in your income, your old policy payout won’t cover your new income amount. If you want to bring that back into alignment, adding more insurance is likely your best bet.
5. New Medical Diagnosis for Family Member
If you have a family member who has a medical condition that may require ongoing and costly care, increasing your life insurance may be a smart move. It will ensure that the condition can be properly treated if you pass away, giving your family a source of funds to handle the costs.
This can be particularly important if your death could hinder your family’s access to health insurance. While health insurance companies do have to offer your family coverage due to the Consolidated Omnibus Reconciliation Act (COBRA), your household would have to pay the total cost of any premiums – including the part that was previously paid by your employer – to keep that policy in place. Depending on how much continuing that coverage would cost per month, it may be more than your family can shoulder without your income.
Although There May Be Alternatives
Additionally, even if your family could transition quickly to a new plan, such as one available through your spouse’s employer, if the coverage cost or quality would change, adding more life insurance could be a good idea. Higher premiums could be hard to navigate on just one income. Similarly, if the coverage means that caring for your ailing family member would cost more out-of-pocket, that could be a serious hardship.
Ultimately, all of the reasons above – as well as many other significant life changes – should at least trigger a reevaluation of your life insurance policy. That way, if you feel it falls short, you can update it accordingly.
Are you aware of any other signs that say you need more life insurance? Share your thoughts in the comments below.
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