Why Reviewing Your Life Insurance Plan Is Important, Especially After Major Life Events

Life insurance serves as a safety net, providing financial protection to your loved ones in case of an unexpected event. However, securing a policy is just the beginning. Life is dynamic, and so are your needs. Periodically reviewing your life insurance plan ensures that your coverage continues to match your evolving circumstances, thus helping safeguard your financial future and that of your family. 

The Need For Annual Reviews 

Regularly reviewing your life insurance plan is crucial to ensure it meets your current or upcoming financial goals as well as aligns with your family’s needs, and also provides you with adequate coverage. Major life events, such as wedding, childbirth, or home purchases can significantly impact your financial responsibilities, and outdated policies may leave gaps in coverage.  

Mainak Adhikary, head of operations, Go Digit Life Insurance, emphasises the importance of annual reviews to maintain adequate coverage.  

He says that rising living costs and inflation can erode the value of existing coverage, leaving one underinsured. Regular reviews allows one to make necessary adjustments to his/her insurance plan in line with current realities as well as explore more competitive options, he adds.  

Additionally, periodic reviews can help one leverage tax-saving opportunities under the Income-tax Act, 1961. Lastly, reviewing your plan periodically will help you incorporate new financial responsibilities or income changes into your policy, thus ensuring that your coverage remains robust as your life progresses. 

Impact Of Major Life Events On Your Insurance Plan 

Life events are powerful triggers for reassessing your insurance needs. Major life events can significantly increase your financial obligations, making it necessary to adjust your coverage to reflect these new responsibilities. 

Wedding: When you get married, you acquire new dependents, and this often means an increase in your financial responsibilities. This may require a boost in your life insurance coverage to ensure your spouse is well taken care of if anything were to happen to you. 

Childbirth: The arrival of a child, whether through birth or adoption, adds new financial obligations, such as the cost of raising the child, education, and eventually, wedding expenses. These can necessitate a significant increase in your life insurance coverage. 

Homeownership: Purchasing a home often involves taking on a mortgage, which represents a substantial financial liability. Adequate mortgage protection is crucial to ensure the loan is repaid in the event of an untimely death. 

Job Changes: Job transitions, whether they involve a salary hike or the loss of employer-provided group insurance, can affect both your income and the level of coverage required. A promotion or a new job may lead to increased financial responsibilities, requiring an updated life insurance policy. 

Retirement: As you approach retirement, your focus shifts towards ensuring adequate coverage for your spouse and dependents. With active income ceasing, reviewing your life insurance to accommodate your post-retirement needs becomes crucial. 

Major Life Events That Call For Insurance Review 

In the Indian context, several life events necessitate a comprehensive review of your life insurance policy. These include: 

Marriage Or Divorce: Both events affect your dependent status and financial responsibilities, requiring adjustments to your life insurance. 

Childbirth Or Adoption: A growing family means increased financial commitments that may require an upward revision in your policy coverage. 

Purchasing A Home: A mortgage increases your liabilities, making it important to have the right level of coverage to safeguard against potential financial hardship. 

Job Changes: Whether it’s a salary increase or job loss, changes in your employment status can affect the affordability and necessity of coverage. 

Health Issues: Chronic or critical health conditions may necessitate adjustments to your insurance plan to ensure you are adequately covered for medical expenses. 

Starting A Business: Entrepreneurship introduces new financial risks and liabilities, requiring a review of your personal and business insurance coverage. 

Key Parameters To Consider During An Insurance Review 

When reviewing your insurance, several factors should guide your decision-making process. These include: 

Adequate Sum Assured: Ensure that the sum assured is sufficient to cover all liabilities, future financial goals, such as children’s education, wedding expenses, and the family’s living expenses. 

Premium Affordability: It’s important to keep premiums within your budget. Make sure the policy remains financially sustainable as your income or financial situation changes. 

Riders And Add-Ons: Assess whether you need additional coverage options, such as critical illness cover, accidental death benefit, or waiver of premium options, to enhance your policy’s protection. 

Policy Tenure: Ensure the policy’s duration aligns with your long-term financial goals, such as your children’s education or your retirement plans. 

Insurer’s Claim Settlement Ratio: Choose insurers with a strong claim settlement ratio, as it indicates their reliability in fulfilling claims. 

Impact Of Inflation: Factor in inflation when determining the sum assured, as rising living costs can erode the purchasing power of your existing coverage over time. 

Does Reviewing Insurance Increase Premiums? 

Reviewing your insurance doesn’t automatically lead to higher premiums. However, opting for higher coverage, adding riders, or switching to a new plan with enhanced benefits may result in an increase in premium. On the other hand, reviewing your policy might help you identify redundant coverage, or unnecessary riders, which could lead to savings. In India, factors, such as age, health, and lifestyle can also significantly influence premiums. So, delaying necessary coverage increases may lead to higher premiums due to age-related health risks.