Why You Should Review Your Insurance Cover at Every Life Stage

If you have a term life insurance policy to cover your dependants against an unforeseen event, that’s a good start. But how long since you have reviewed if it’s enough? If that appears like a long time, know that buying insurance is not enough; reviewing it periodically is what will make it work for you and your family.

Like other financial products, life insurance is not a one-size-fits-all solution. Your family’s needs will change as you progress through different life stages and as circumstances and liabilities alter.

Start Right

If you are in your 20s and do not have dependants, taking a life insurance cover may seem useless, but this is still the smartest time to get covered.

Unlike health insurance, term insurance premiums do not increase with age or any health complication that may arise later. “You are young and healthy, and premiums reflect that. Starting early means you lock in lower costs for the long haul,” says Sarvesh Kumar Mishra, chief third-party distribution officer, Generali Central Life Insurance.

Your responsibilities may be limited, but there could be liabilities like an education loan. Says Mishra: “A starting rule of thumb is to cover yourself worth 10-15 times your yearly income, but that number needs to be tested against your actual situation. In your 20s, somewhere between Rs 75 lakh and Rs 1 crore is a sensible base. Premiums at that age are low enough and going higher (on the sum assured) is not a stretch.”

Scale With Every Milestone

Review your insurance whenever a major life milestone or financial change occurs, such as wedding, children, buying or refinancing a home, job changes, starting or selling a business, divorce or separation, retirement, and any other significant changes in health or dependants.

After your wedding, your spouse’s financial security will at least partly rest on you. The birth of a child will expand that responsibility by two decades and will add significant costs.

Says Madhupam Krishna, a Securities and Exchange Board of India-registered investment advisor (Sebi RIA) and chief planner, WealthWisher Financial Planner and Advisors: “Marriage changes who depends on your income and who should be a beneficiary, so coverage amount and beneficiary designations should be checked. Having children (or adoption) increases financial responsibilities. You will likely need higher life cover, income protection, and possibly critical-illness or education cost planning.”

He adds that if you are a newly married couple with no children, a cover that is 15-20 times your income plus mortgage and shared debts would be ideal. “When you are new parents or have a young family, increase the cover by 20-25 times your income plus mortgage and education cost estimates.”

You need another layer of cover when you take a loan. “Taking a home loan means your family inherits that debt in your absence; the cover must account for it,” says Mishra.

A meaningful salary increase is another milestone when you should review your cover, as financial commitments usually expand. “A higher standard of living, larger loans, and bigger aspirations for children mean that the financial impact of losing that income becomes more significant. This often requires enhancing coverage or adding riders, such as critical illness protection,” says Sarita Joshi, head of health and life insurance, Probus Insurance, an insurance broker.

As you age, responsibilities towards children and parents peak, so coverage should be strong enough to safeguard long-term goals.

Review After Every Unexpected Event

A job change, promotion, or job loss can change income, employer-provided group coverage, and eligibility for workplace benefits.

Says Krishna: “A change in career or starting, buying, or selling a business creates debts and partner obligations that may require specific business insurance or personal cover to protect owners and family.”

Events like a divorce or separation also require an update. “Such events usually require beneficiary updates and re-evaluating who is financially responsible for dependants and debts,” adds Krishna.

Also, untimely retirement or significant debt repayment may reduce or change your need for life insurance. Likewise, significant health changes, diagnosis of a serious illness, or major lifestyle changes affect affordability, coverage needs, and eligibility for new policies.

Other events, like moving out of the country or becoming a non-resident Indian (NRI) also affect the types of policies available along with a change in how taxes and claims are evaluated. Inheritance or sale of property changes your net worth, and requires a review of insurance

During these times, one must consider additional products like term top-up, critical illness, disability/income protection, or business cover.

Shift Focus Near Retirement

This is the stage when loans reduce or are paid off, income builds up and children are closer to being or are independent. You may need some protection for the remaining liabilities or obligations and to support a dependant spouse.

Says Joshi: “By your 50s, if retirement planning is on track and liabilities are lower, the required cover may gradually reduce. The key is to ensure your family can replace income and meet their financial goals comfortably.”

When you are nearing retirement, a cover that is 5-10 times your income may be enough. You may also consider shrinking the tenure of the cover to match retirement age. “When you are retired, or near retirement, most people need little or no long-term cover. If your debts are cleared and pension and/or investments replace income, consider a small policy for final expenses or an income-smoothing annuity alternative,” says Krishna.

Do remember that while an insurance annuity plan can provide regular income, it is important to make your retirement corpus last longer and beat inflation. So, consider diversifying into products that can give you better returns as well as regular income.

In general, experts advise keeping investment and insurance needs separate. Says Arun Ramamurthy, co-founder, Staywell.Health: “When life insurance is combined with investment purposes, there will often be compromises in either the level (amount) of cover available or the level of cost (premium) for the combination of cover and investment. Pure term plans are focused solely on providing adequate financial protection.”

A practical rule to ensure you have enough cover is to assess the financial gap between what your dependants would need and what the existing assets would provide as benefits. Put simply, aim for enough term cover to replace lost future income, clear liabilities, and pay one-off needs, such as education costs. Life insurance works best when it evolves alongside life itself.

meghna@outlookindia.com