Guide to Updating Your Life Insurance Policy:

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A life insurance policy is designed to protect surviving loved ones during an unexpected tragedy. If it's been a while since you purchased your policy, there's a good chance it doesn't adequately reflect significant shifts in your life and financial situation. Getting married or having children can change your priorities, as well as starting a business. As your life changes, so should your life insurance policy.

You can review your life insurance at any time. When you experience a major life change or shift, this is the ideal time to revisit your policy for any updates. As your circumstances change, you may need to adjust your benefits, the type of coverage and your beneficiaries to reflect current and future needs.  

What Does Life Insurance Cover? 

Life insurance policies can vary, but typically they cover most causes of death, including:

• Natural causes
• Illness
• Accidents

While most deaths are covered, there are instances when beneficiaries won't receive a life insurance payout. If there was fraud during the application, suicide (if there's a suicide clause) or the policyholder participated in risky activities, an insurance company may refuse to pay out death benefits. Consult your life insurance policy or contact your insurer to determine what's covered. 

When You Should Update Your Life Insurance Policy

It's always a good idea to stay up to date on a life insurance policy, especially when it comes to the designated beneficiaries. As life happens and circumstances change, you'll want to update your policy to reflect those changes. 

Here are some important life changes that would merit an update in a life insurance policy. 

1. Your Family Grew

Getting married or having children are times to celebrate. As your family changes, though, it's essential to make sure that surviving loved ones are taken care of financially in the event a death occurs.

This could mean updating your beneficiaries or increasing your policy to provide more coverage in the event of your passing. 

2. Your Income Changed

Get in the habit of reviewing your insurance policy any time your income status changes. One's income can help to gauge the amount of coverage a family needs when a loved one is gone, as well as how much coverage you qualify for.

Reasons your income might change include: 

• A new job
• A promotion 
• Switching from part-time to full-time
• Loss of job

If your income has increased significantly recently, it's a great time to review your policy to determine if it provides adequate protection for your family. 

3. You Started a New Business

Starting a new business endeavor can be exciting, but also comes with a lot of financial risks and debts. Those who start a new business may qualify for a small business life insurance policy to help ensure that the company can continue to operate and be financially viable after their passing. 

4. You Bought a New Home

Buying a home is the single largest purchase most people make. It also represents a considerable expense that someone will need to cover if a homeowner passes. Will your policy provide enough financially to cover mortgage payments?

Double-check your coverage to see if you will need to increase the size of your policy or if you can benefit from getting mortgage insurance to help ensure your family can afford to stay in the home. 

5. You Got a Divorce

Divorce can get messy, especially if children are involved or if the divorce settlement includes insurance coverage or beneficiary stipulations.

When your divorce is final, it is crucial that you revisit your life insurance policy to make sure it reflects your needs post-divorce. Double-check the beneficiary designations and level of coverage that you will need. Consult a divorce attorney to ensure you are not violating the terms of your divorce agreement.  

Choosing a Beneficiary

Besides choosing a policy and coverage, choosing beneficiaries is one of the most significant decisions you'll make. You may have the option to choose a primary beneficiary and contingent beneficiaries, as well as who and how proceeds will be divided among beneficiaries. 

You have plenty of options when choosing a beneficiary. Common examples of life insurance beneficiaries include: 

• A spouse or partner
• A child or children
• A family member
• A trust
• Your estate 
• Your company or other legal entity
• A charitable organization 

Choosing a beneficiary isn't an easy decision. Here are some questions to ask yourself when choosing a beneficiary for your life insurance policy.

1. What is the Purpose of the Policy? 

Knowing why you want a policy in the first place should guide your decision. Is it to protect your family? If so, think about designating a spouse or child as a beneficiary. If it's for your company to continue business as usual, a trusted business partner might be a suitable choice. 

2. How Many Beneficiaries Do You Want? 

You can name a single person as your beneficiary or choose to split the proceeds among several people. Some policies may also have a limit on how many primary beneficiaries you can have, so if you have a large family, you should choose wisely.

3. Do You Want a Contingent Beneficiary? 

The primary beneficiary is the individual who will receive the proceeds when you pass. You can also set a contingent beneficiary, who will receive the death benefits if the primary beneficiary's death occurs around the same time as yours.

4. Should You Designate a Minor as a Beneficiary?

Many states limit when or how much a minor can receive from a life insurance payout. If a child is under the age of 18, there is an option to designate a guardian to oversee the payout distribution or set up a trust. 

5. Are There State Laws or Other Rules to Consider? 

Understanding state laws and your own policy rules can protect your beneficiaries from messy legal situations after your passing. Check with your insurance company or agent to determine if there are any special laws or circumstances you need to factor into your decision, such as restrictions on who can be named as a beneficiary.

Do I Really Need Life Insurance?

Life insurance puts a hedge of protection around your loved ones in the event of your passing. It's not something we like to talk about, but it's a reality of life. Having life insurance provides financial stability for your family. Depending on your situation, you can use the insurance policy to leave behind an inheritance, to help your family cover outstanding debts and expenses and to provide some financial security for those you love.

We can't predict the future. Investing in a life insurance policy brings peace of mind now and during a difficult time of loss.