Life insurance is a crucial component of your estate plan, providing financial security for your loved ones after your passing. As your life circumstances change, so too might your life insurance needs. Here are nine compelling reasons to consider updating your life insurance policy.

1. You Want a Different Type of Life Insurance

There are two primary types of life insurance: term and permanent. Term life insurance covers you for a specific period, typically 10 to 30 years, and pays a death benefit if you pass away during that term. Permanent life insurance, on the other hand, lasts your entire lifetime (or up to age 99) and builds cash value that you can borrow from or withdraw.

Term life insurance is generally more affordable, especially if purchased when you are young and healthy. As you age and your financial situation improves, you might consider switching to permanent life insurance. Conversely, if permanent life insurance becomes too costly, you could opt for its cash surrender value and switch to term life insurance.

2. Your Term Life Insurance Policy Is Expiring

When a term life insurance policy expires, you have the option to renew it or shop for a new policy. Some term policies are renewable on a year-to-year basis without a medical exam, which can be beneficial if your health has declined. However, premiums typically increase with age. If you are in good health, it might be more cost-effective to apply for a new term life insurance policy with fixed premiums.

3. Your Family Status Has Changed

Life events such as marriage, having children, or divorce can significantly impact your life insurance needs. If you have dependents, you will need more coverage to ensure their financial security. Conversely, if you get divorced and have no dependents, you might reduce or drop your coverage. Additionally, you may want to update your beneficiaries to reflect your current wishes.

4. You’re Buying or Paying Off a Home

Purchasing a home is a significant financial commitment. Ensuring you have enough life insurance to cover your mortgage can help your loved ones maintain their home in your absence. Once your mortgage is paid off, you might consider reducing your life insurance coverage.

5. Your Health Has Changed

Life insurance premiums are partly based on your health. If your health has improved since you purchased your policy, you might qualify for lower rates. Conversely, if a family member’s health has declined, you might need to increase your coverage to cover potential future expenses.

6. Your Financial Situation Is Better—or Worse

As your income and lifestyle change, so too might your life insurance needs. A higher income often means higher expenses, necessitating more coverage. If you face financial difficulties, maintaining life insurance becomes even more critical. Consider shopping around for better rates or switching from permanent to term life insurance if necessary.

7. Your Employment Changes

Job changes can affect your life insurance needs. If you or your partner lose employer-provided life insurance, you might need to increase your coverage. Starting a business may also require life insurance on key partners to ensure the business’s financial stability in the event of a partner’s death.

8. You’re Nearing Retirement

As you approach retirement, reassess your life insurance needs. If your partner can access Social Security, pension benefits, or retirement accounts without penalty, and your children are financially independent, you might reduce or drop your life insurance coverage.

9. You’re Supporting Aging Parents

If your aging parents become financially dependent on you, increasing your life insurance coverage can ensure they are cared for in your absence. This consideration is crucial as their health and financial needs evolve.

The Bottom Line

Life insurance is a dynamic component of your financial plan, requiring periodic reassessment to ensure it meets your current needs. Factors such as health, family status, financial situation, and employment changes can all necessitate updates to your policy.

At O1ne Mortgage, we understand the importance of financial security for you and your loved ones. For any mortgage service needs, call us at 213-732-3074. Our team of experts is here to help you navigate your options and find the best solutions for your unique situation.