It’s tempting to think of life insurance as a financial product that you buy once and forget about, when in actual fact, nothing could be further from the truth. Few things in our lives remain the same forever. When life changes, so too should your life insurance policy. But when exactly should you update your life insurance cover?
In this article, Acumen Financial Partnership provides practical life insurance advice to help keep your policy up to date and fit for purpose.
Keeping your life insurance cover updated
It’s highly unlikely that your first car and home will be the ones you drive and live in respectively through to retirement. Things change. Lifestyles evolve. Needs and expectations alter with age and experience. Starting a family, greater managerial responsibility, relocations and renovations are among the many major life events that shape our financial outlooks. Your life insurance cover should also adapt to suit your situation.
Far from being a one-off solution, life insurance is there to be tweaked as and when necessary. Whilst the terms of your policy may have been ideal at the time of purchase, they won’t necessarily remain suitable over the duration of such a long-term investment. The harsh reality is that if you fail to keep your insurance cover up to date, your dependents may not receive adequate protection when they need it most.
Reasons to update your life insurance policy
The message that we hope you’re receiving loud and clear here is that you shouldn’t be afraid to amend your life insurance cover to suit your changing requirements. It’s a sensible idea to review the terms of your life insurance policy every 12 months to ensure it still provides your dependents with enough protection.
You may not need to change anything at all but if any major life events, such as those listed below, occur then you would be well-advised to speak to your provider or a financial adviser to review your life insurance cover.
House move or remortgage
Moving to a bigger home or remortgaging will inevitably increase your debt. In such cases, you should seek to increase your cover accordingly to ensure your dependents are well-placed to pay off your new mortgage.
Paid off mortgage
On the flipside, you may find yourself in the fortunate position of paying off your mortgage sooner than you expected. In which case, you can reduce your amount of life insurance cover and cut down your premiums.
Growing family
There are few greater joys in life than welcoming a new child or grandchild into this world. With every new addition you may want to revisit your life insurance policy to ensure it protects the entire family.
Rising property value
Your children may have to pay 40% inheritance tax (IHT) if your estate is worth more than £325,000 although this threshold rises to £500,000 for children and grandchildren if you have a family home to bequeath. As your home’s value rises, you may want to increase your life insurance cover (and make sure it is written in trust) to reduce the IHT burden of your dependents.
Divorce
Following a divorce you may not want your life insurance to pay out to your former partner. Most providers allow you to change the beneficiary on your policy but bear in mind this may require their written consent.
Bankruptcy
Sadly financial problems can sometimes be so serious that bankruptcy is inevitable – but do make sure you get proper advice on any life assurance policies that you want to keep hold of. There is a short period of time during which you can “buy back” the life assurance policy from the Trustee in Bankruptcy and if you don’t act quickly, the Trustee in Bankruptcy will get to keep the proceeds of a policy which was set up to protect your family.
Life insurance advice from Acumen
Many, but not all, insurance providers will allow you to change the terms of your life insurance cover after you’ve purchased it. Check your policy documents carefully or speak to your provider directly to find out whether you can make any changes. All is not lost if you can’t. You can buy additional cover to supplement your existing policy or you could REPLACE the old policy with a new one and then cancel the original plan. DO MAKE SURE THE NEW POLICY IS IN PLACE BEFORE YOU CANCEL THE ORIGINAL PLAN! This can sometimes lead to a better deal.
Such decisions require careful consideration and Acumen is here to assist with straightforward and impartial life insurance advice to support your decision-making process. For more information about our life insurance services, or to arrange a consultation with one of our experienced advisers, please contact Acumen today by calling 0151 520 4353 or email us at info@acumenfinancial.co.uk.
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