It is quite common for people who take out life insurance to carry on paying their monthly premiums without giving a lot of thought to whether the policy is still right for their needs.
However, there are a number of reasons why policies should be kept under review and updated whenever necessary.
1. Changes in income
If your earnings increase significantly, you may want to increase the amount you are insured for.
If your policy is designed to give your family a lump sum in the event of your death, it makes sense that the amount insured rises in line with your family’s standard of living.
Five reasons you should buy life insurance cover.
2. Moving home
Similarly, if your policy has been set up to cover your mortgage commitments, you may need to update it if you take on more debt by moving to a more expensive property or by remortgaging.
3. A growing family
As you have more children, so the cost of raising your family will grow. New additions should be a key catalyst for a review of life insurance levels.
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4. Changing beneficiaries
One common mistake is failing to change the named beneficiary on a life insurance policy in the event of divorce or separation. When you set up a policy, you will be asked who is to benefit and this can only be changed by your direct instruction.
5. Rising inheritance tax threat
Older people often take out life insurance in order to help their families meet any inheritance tax bills that are due on their estates. Extra cover may be required if their assets increase significantly in value, for example as a result of a booming property market, or if the government makes the inheritance tax regime more punitive.
Could you use life insurance to cover the cost of your inheritance tax bill?
How to update your policy
Administrative changes, such as replacing a named beneficiary, should be straightforward to carry out.
If you want to increase the level of cover, your insurer may allow this without any further checks in return for a small increase in premiums. In some cases, though, you may need to go through a repeat of the original application process, answering questions about your health and so on.
However, it is rarely a good idea simply to cancel your existing policy and take out a new one with more generous levels of cover. Generally, the younger you are when you take out life insurance, the lower your premiums are. It may, therefore, work out cheaper to keep your old policy and simply buy a top-up policy, either with your existing provider or a rival.