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Life insurance isn’t something most of us think about every day, but it plays a crucial role in protecting loved ones financially. Over time, your circumstances change – and your policy should change with them.
If you don’t update your policy after a major life change, you risk being underinsured, overpaying for cover you no longer need, or having the payout go to the wrong person.
From downsizing to retirement, or even moving abroad, there are key life moments when reviewing your cover can save you money and ensure your family is properly protected. Here’s what to look out for.
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If you haven’t updated your insurance for a while, there’s a risk that the payout will have been devalued by inflation, especially after the relatively high inflation rates of recent years.
Apart from a short period in 2024, inflation has been above the Bank of England's 2% target since July 2021. As an example, if you took out a life insurance policy 10 years ago with a payout of £100,000, you would need one now promising around £140,000 to have the same purchasing power as a decade ago.
If you’re concerned about this, you could take out a policy with increasing cover, to keep up with rising prices. This could either be a policy that is linked to inflation, or one that comes with a set increase each year. The downside is that your premiums are likely to rise every year to reflect this.
Tom Vaughan, life insurance expert at price comparison site Confused.com, says: “The most important thing is to make sure your policy keeps pace with your current circumstances, but any changes should be based on what is right for you both now and in the future.”
As a general rule, it’s sensible to review your life insurance policy once a year. But the most important time to do it is after a change in circumstances. Much like updating a will, your life insurance should reflect any major life events that might affect your financial responsibilities.
Downsizing your home is a great opportunity to reassess your life cover, says Gosia Dawson, independent financial adviser and founder of Glade Financial. “If you’ve paid off or reduced your mortgage and no longer have financial dependants, you may not need as much cover or, in some cases, any at all,” she explains.
It's also a good time to think about what role your policy now plays. Is it for legacy planning, helping family with inheritance tax, or simply peace of mind?
“Adjusting your policy to reflect your new circumstances can help avoid overpaying for cover you no longer need,” adds Dawson.
If you’ve recently split from your partner, you’re probably already processing a lot, and updating your life insurance is probably not at the top of your mind. Whether it’s something you need to worry about will partly depend on whether you have a single policy (in other words, one that covers just you) or a joint policy that covers you both, as well as who is named as the beneficiary.
Alicia Hempsted from comparison site MoneySuperMarket, says single policies can usually be left as they are, although you might want to change the name of the beneficiary.
“Unless you update it, your policy will stay the same, which could mean an ex-partner remains as the beneficiary and receives the payout if you pass away.”
If you have a joint policy, you might be able to separate it into two single policies. But many insurers don’t allow this. That means that either one of you needs to take over the policy and the other takes out a separate policy, or you will need to cancel the joint policy and both apply for cover separately.
Note that the cost of your policy will likely be higher now that you’re older.
If you’re getting married or remarried, there’s a lot to think about. Life insurance might be worth remembering to consider, especially if you have a policy that needs updating, or if you don’t have life insurance but now have new dependants.
You could choose to take out a new policy to run alongside an existing one to support your spouse and any new dependants. Or you may wish to change the beneficiaries on an existing policy. “This helps ensure the money goes to the right people, such as children from a previous relationship or others you choose to support,” says Dawson.
If any children are under the age of 18, the policy can be written in trust for them until they become adults.
As you approach retirement, your financial commitments often decrease. Your mortgage might nearly be paid off, and your children may have flown the nest and be more financially independent.
Hempsted says: “Adjusting your coverage to align with your needs ensures you’re not overpaying, and some may choose to take out additional life insurance in their 50s or 60s to leave a financial gift for their loved ones.”
We explain more here about how to record financial gifts properly if your estate is likely to be liable for inheritance tax.
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If you’re planning to move abroad, speak to your life insurance provider to see whether your existing policy will remain valid.
This will partly depend on the risks in the country you’re moving to and whether it’s a temporary or permanent move, explains Liz Hunter, commercial director at MoneyExpert.
“In most cases, you’ll be able to keep your cover in place as long as you continue to pay your premium from a UK bank account,” she says. But exclusions may apply for certain high-risk regions or lengthy periods abroad.
If your cover isn’t valid, you may need to take out a new policy in the country you’re moving to, or find a provider that offers insurance in multiple countries.
Retirement is often a time when people look to try new experiences. But before taking part in anything too adventurous, check the small print of your life insurance policy.
Alex Hollinshead, financial planner at EQ Investors, says most insurers will cover adventurous activities, such as skydiving and scuba diving. But you need to tell your insurer that you’re planning to do them.
Your premiums may be adjusted upwards to reflect the higher risk of these activities.
You don’t necessarily need to tell your life insurance provider about every little detail, but if in doubt it’s better to let them know. When it comes to changes in your health, it’s not usually necessary to inform your provider, unless you’re applying to increase your cover or switching providers.
Tom Vaughan explains that for term life insurance policies, you are not required to inform your insurer about any changes in your health after your policy has started.
Life insurance can be a significant cost, and can also make a real difference to people you leave behind. So it can be worth speaking to an independent financial adviser to make sure you’re making the right decisions. This can be particularly worthwhile if you’re not sure how much life cover you need, or if you don’t think you need life cover anymore.
If you’re thinking of switching to another life insurance provider, perhaps for lower premiums or the prospect of a higher payout, tread carefully.
Your new policy may have different terms to your existing one and if your health has deteriorated since you first took out cover, your premiums will likely rise.
Hollinshead says: “Changing providers will result in a new two-year contestability period, meaning that if the provider discovers any inaccuracies in the information provided, cover may be denied.”
A more suitable time to switch providers is once your existing policy expires, especially if you have a term life insurance policy, which only lasts a set number of years (and will only pay out if you die within that timeframe). You can usually find details of your policy term and expiry date on your policy documents, or you can give your provider a call.
If the expiry date is approaching, you may be able to renew your policy with your existing provider or move elsewhere.
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