Is it time for you to consider a review of your life insurance or income cover?
If you have taken out a life insurance policy, then you are well on your way to successfully securing your family’s future, and avoiding the financial burden which can come with your death, and make the grieving process all the more difficult. However, while taking out life insurance is an important first step, a life insurance policy is not a set and forget type of product. Instead, just as your life changes and moves forward, so too must your life insurance change as well, which is why you need to regularly review and update your policy to account for and cover these changes.
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There are few financial products that you can simply set and forget – you should regularly review your home loan to find new features and a better interest rate, your share portfolio is fluid, and your retirement savings should constantly be adjusted to reflect the number of years before you need them. Life insurance is no different, because as you go through life, your insurance needs change, and you want to make sure you’re getting the most value from your insurance products.
There are many reasons you need to review your policy, such as:
- The Australian insurance market is competitive. There are a number of insurers out there vying for your business, and as such they are releasing new specials and deals all the time to entice you to their products. Therefore, as you undertake a regular review of your life insurance needs, also take the time to look at the offers now out there from the Australian insurers.
- Improvements to insurance policies. Insurers and industry bodies are constantly responding to customer feedback and trends, to tailor products to better suit Australians’ needs. Therefore, if you took out life insurance 12 month ago, there could be a new product available that is even better suited to your needs.
- Your life changes and so should your life insurance. Life insurance is insuring possibly one of the most fluid things in the world. Just because it seems as though you trudge out to the same daily grind day after day, or you manage the house and herd the kids around the same way week after week, you are moving forward. For example, you may have gotten a promotion at work, and bought a new car. Or your daughter may have started her last year of high school and be looking at tertiary education options. Even something as simple as joining a gym could affect your life insurance. As your life changes, think of the new commitments you’re adding, and just how your family would be able to pay for this new lifestyle if you weren’t there, and whether they’d have to go back to the life you were living two, three or four years ago when you chose a life insurance benefit amount.
Your goal when reviewing your life insurance is to ensure that you maintain enough coverage as you get married, have kids or take out a mortgage. However, there are also other aspects of your life insurance that need to be reviewed, and this is where your estate planner, accountant or attorney will also need to be reviewing your policy, to make sure your policy avoids taxes being attached to your estate when the benefit is paid out, and how your policy is performing as an investment. Key aspects to watch out for:
- Review level of cover. This means considering whether your coverage amount is correct for the needs of your beneficiary.
- Consider your personal circumstances. As you review your policy, consider your age, your lifestyle, your health, your status and your income, and how any or all of these have changed since you first applied for your life insurance. For instance you
You may think that you’re too busy living your life, to worry about checking over your life insurance needs. While it may be true that your life is running at a fast pace, you are never too busy to take care of your family’s future, so use this simple tool to make reviewing your life insurance quicker and easier – a policy summary.
It is a good idea to have a policy summary for each insurance product you have, so you can review them all at the same time, and adjust them to your changing needs. A policy summary is simply a one page document you’ve created which contains:
- The basics of the policy
- The amount of coverage
- The benefits of the policy
- Any restrictions on the policy.
Some insurers will include a policy summary with your other policy documents when you sign up with them, but if you have to make your own, don’t worry. You can type out or have handwritten notes on your life insurance policy, and keep them filed together, so that there is no excuse for having a policy that doesn’t match your needs.
As you review your policy summary to make sure that your life insurance is still the best for your needs, these are the features you should be thinking about:
- The insurer: Think about the provider you’re insured with, and how they have been operating since you last reviewed the policy. Are you happy with their customer service, have they been reported as paying out claims, and are they still operating solidly, have they been bought by another company and are they still Australian owned?
- The date of issue: This is especially important if you have a term life insurance policy, which has an expiry date. Otherwise the date of issue is simply when your policy renews for the coming year.
- The premium: If you have opted for a life insurance policy with level premiums, you pay the same amount each year, with small increase for inflation and cost of living rises if you have chosen that option. However, if you have a policy with stepped premiums, you will be paying more and more each year, so make sure when you review your policy, you also review your budget to check affordability.
- Your beneficiaries: The beneficiaries of the policy can change over time, for example if you get married or divorced, you have children, or your children move out of home and you want to reduce their benefit amount.
- Your income has changed
- New financial obligations
- Buying a new home
- Having children
- Getting married
- Getting divorced
- New assets
- Removing beneficiaries
If you have reviewed your life insurance policy and found that changes need to be made to reflect your new circumstances, there are certain changes you can make yourself, and others that you need to make with the help of your lawyer or accountant. For example, as the owner of the life insurance policy you can contact your insurer to change:
- The beneficiaries. If you have had children, adopted a child or gotten married or divorced, then you may want to change the beneficiaries listed to receive a benefit payment from your life insurance policy. If you think that you will get around to making the change to your beneficiaries, and don’t do so in any rush when you have children, or when your marriage dissolves, then you need to realise that at your death, your current life insurance policy is a binding legal document. Therefore, the beneficiaries who are named at the time of your death are the ones who will receive the benefit payout from the policy regardless of whether you have fallen out of favour – with an ex-spouse for example. There is no other document that can be accepted in place of a life insurance policy, or that can change the beneficiaries of an insurance policy after your death, and there is no document that will be accepted as proof that you wanted to change your policy. Therefore, make sure that your life insurance policy is kept updated at all times, and that any changes are made correctly. Contact your insurance agent to change beneficiaries on your policy, to ensure you complete the correct legal documents. Make sure you also receive a copy of the documents, and of your newly updated policy that includes the changes.
- Your personal details. The basic information in your life insurance policy needs to be maintained current at all times. Therefore, make sure you contact your insurer if you change your name, your phone number or your address. Also always check carefully to ensure that all details have been entered correctly by your insurance agent, and that you have any spelling errors corrected.
Regardless of the type of life insurance policy you have, the size of your home or your family unit, it is important that as your life changes, your life insurance keeps up. As you and your family grow and your needs change, you adapt your lifestyle – maybe by sleeping less, working more, working less or cutting back on expenses such as a second car. However, no matter how much your life and your family changes, it would still be financially devastating for your dependents if you were to die, but if your life insurance can change and adapt too, you can at least know you have reduced the financial burden at an already difficult time.Back to top