Have you ever considered upgrading your life insurance policy?
Life insurance is arguably the most misunderstood form of insurance. There are many reasons for this. Unlike medical insurance which is everywhere, we rarely see mention of life insurance. Maybe it has to do with confronting the topic of death and your own demise. People are reluctant or hesitant to talk about it since the topic of death is involved. It is also not as essential to modern life as medical insurance or property insurance. Because of these reasons, even people with life insurance can be very uninformed.
One area about life insurance which is not understood properly is upgrades. People do not know or even think about upgrading their life insurance policy. This is due to some notion that once you have a life insurance policy, then it will suffice for life. This is a wrong and unwise idea. As we will show you, there are many reasons why you might need to consider upgrading your life insurance.
Change in Income Levels
Life insurance handout in part reflects lost earning from your demise. It makes sense that your life insurance policy reflects any changes in income levels. If your income increases, it will be wise to increase your life insurance policy. You will have more disposable income to afford higher premiums for bigger payouts. If you forego an upgrade, your family might find the payout inadequate. In that case, even with a payout, they might be forced to scale down their life.
Change in Mortgage Commitments
Most life policies are set up to pay off mortgages in case of unexpected death. You should upgrade your policy if you change to a more expensive house. An expensive house will have higher mortgage commitments. Your new policy should be enough to cover outstanding dues. Otherwise, your family might face foreclosure. You should not leave your family an outstanding mortgage debt with insufficient payout.
Increase in Family Size
An increase in your family size is a permanent change to life. A new baby will represent increased future expenses. Costs like medical insurance, education funding, and wedding expenses will all arrive in the future. You should thus upgrade your life policy to account for a greater number of children.
Your life insurance is primarily meant for the security of your children. Going without upgrading it despite 1 or 2 new additions to the family might leave a lot less for everyone. Your children will have to forego on education to make ends meet from a more constrained payout.
Changes in the Law
Changes in the law like higher inheritance tax or income tax can also require a policy upgrade. A rise in the aforementioned tax rates will leave less money for your family. In some cases, the inheritance might not be sufficient after taxation. You should thus upgrade your policy to compensate for higher taxes. Your family will be secured the same amount of assets even with higher inheritance tax.
Conclusion
You should never be content with sticking to a single unchanging insurance policy. This advice is not just for life insurance but all types of insurance. Insurance should always reflect your current situation and be changed accordingly.
