A life insurance policy is, usually, a long-term contract. Especially a term insurance plan is taken for the maximum possible tenure so that you can avail of the coverage till your ripe old age. However, when you opt for the same, your requirements might be completely different from today. Reviewing your overall life insurance coverage across the various plans that you may have becomes essential!
There are various reasons why you should review the life insurance policy that you have bought.
Let us have a look at such reasons:–
1. Financial Goals might Change throughout the Plan:
When you invest in a life cover policy, you do so, keep your financial goals in mind. However, your goals are dynamic and keep changing. If your goals change, you need to make fresh provisions for them after buying the life insurance policy. As such, a review becomes necessary to ensure that your life cover policy aligns with your financial goals.
For example, when buying the policy, you were young and just started a job. Then, you get married, have children, and your parents also become financially dependent on you. To plan for these new financial goals, you need to review your life insurance cover so that you can supplement it by enhancing the existing coverage or opting for a new policy.
Tip: You need to ensure your life insurance coverage is in tandem with your financial goals. If your liabilities rise and your financial goals change, you need to increase your coverage. Similarly, if your liabilities decrease, you might wish to lower your existing coverage.
2. To-Factor in Inflation:
Though you try and build a corpus for your goals through a life insurance policy, you might overlook the inflationary trend. Inflation is a real game-changer that changes your financial needs considerably, especially over a long-term horizon. Thus, when going for a life insurance plan, it is suggested to consider the inflation rate and then calculate the expected corpus/returns to attain your goal or the money you want to leave for your family members.
Tip: To calculate the life insurance corpus with inflation, you need to factor inflation as the growth rate and then check if your life insurance corpus still suffices for the need.
3. To Check for Mistakes:
Life insurance is a technical concept, and if you buy a policy without understanding its terms and conditions, you might make a mistake. When you regularly review the life insurance policy, you can check if you made any mistakes in buying the policy. If the mistakes are corrected at an earlier date, you can avoid possible dilemmas in the future.
For example, say you stopped paying a premium in your life insurance plan due to which the policy is in a lapsed state. The lapsed policy would not give the promised benefits on death or maturity. However, when you review your life insurance coverage, you will see that you have lapsed it. If you are within the period of revival, you can choose to continue with the same policy.
Lapsing the policy was a mistake, and when you review your cover, you can revive the lapsed policy by paying the outstanding premiums.
Tip: Most life insurance plans do not allow you to correct mistakes once the policy has already been issued. However, if there are some checks and points at regular intervals, such concerns and mistakes can be avoided.
4. Addition of Liabilities:
If you have new financial liabilities, like a new debt or the birth of another child for which you need to create another fund, you need to make provisions for the same. In such cases, you need to assess the sufficiency of your existing coverage and buy new plans, if required.
Tip: Some life insurance policies, especially term plans, give you a provision of increasing your coverage on certain important events of your life like marriage and childbirth. However, you might not be able to increase coverage in the existing, but you can always increase your overall life insurance coverage by opting for an additional plan.
5. Change in your Financial Standing:
Over your life, your income might grow if you get promotions at your job or expand your business. With an increase in revenue, your standard of living changes, and so do your financial needs. Your life cover policy should also adapt to your changed financial standing. To ensure that the policy adapts, you need to review it. If you have a low coverage amount, you need to enhance it so that the policy would allow your family to enjoy the same standard of living even after your demise. You might not be able to increase coverage in the existing plan, but you can always increase your overall life insurance coverage by opting for an additional plan.
Tip: Enhancing your life insurance coverage is usually not allowed in your existing plan. If the same is allowed, then you can enhance the existing plan. Else, the easier option is to buy a new policy online for a fresh timeframe and increase your overall life insurance coverage. Thus, when you review your life insurance policy, you realise the importance of improving your overall coverage if there has been a change in your financial position, lifestyle, etc.
To Wind it Up:
The basic reason to review your policy is to ensure that the purpose of the policy is served even when the circumstances change. Your policy should provide the necessary financial protection to your family throughout the years. To ensure this financial protection, a review is a must. Review life insurance policy every 2-3 years to ensure that your policy is in sync with your financial needs and goals. If there is any shortfall or corrections, take the necessary corrective measures to ensure that your life insurance policy does what it is meant to do – provide funds when needed.