Global Outlook

Review your life insurance policies on a timely basis and ensure the financial security of your loved ones.

Contributed by Nirmal Bang

Most of us believe that taking a life insurance policy will secure the  financial future of our near and dear ones. While that is what is expected of an insurance policy, do not expect it to work for you if you had taken the policy a few years ago when circumstances were different from what they are now.

Over a period of time several factors that contribute to determining the insurance coverage for an individual are bound to have changed.

You may now have been promoted, which means more money at your  disposal or you may have bought your first house taking a home loan you were not eligible for earlier. This means that you have committed to a long-term financial outflow.

Each of these factors would require M an enhancement in the insurance coverage so as to ensure that your loved ones are fully protected to take care of the financial outflow that may fall upon them in your absence.

While it is important that you take the first step of buying a life insurance policy, it does not end there.

To serve the objective of financially protecting your loved ones, a periodic review is essential to make the necessary changes in the policy depending on the changes in your lifestyle or in situations like your marriage or becoming a parent.

Just as an investment portfolio requires timely review to maintain/alter the balance of asset classes, similarly review of an insurance policy is needed to make sure that you have fulfilled your responsibility towards your family.

Review your life insurance policies on a timely basis and ensure the financial security of your loved ones What Are The Instances/ Changes In Life That Will Need You To Review Your Policy?

Change In Income Levels

Income is one of the most important factors that is used to determine the sum assured in an insurance policy. With increase in income, a person’s life style and other associated things undergo a change. Thus, an increase in income will require you to increase the total sum assured.

The thumb rule is to ensure that the life cover is eight to ten times your net worth. What would happen if you lost your job?

You need to read the terms of the policy to figure out whether there is a moratorium period on the policy which provides for postponement of the premium payment.

Additional Financial Responsibility

In order to fulfil our aspirations, as income levels rise, individuals tend to resort to home loans, car loans and other kinds of loans. With loans come financial obligations of loan repayment through EMIs, especially in case of home loans, where the average tenure is 20 years.

So any loan that you have taken entails a long-term financial obligation, requires an enhancement of the insurance coverage so that the EMI outflow can be taken care of by your loved ones in your absence.

The entire objective of having a life insurance policy is to free your family members from the financial burden that can dawn on them in your absence. Make sure that you do enough to protect them from financial stress when they would anyway be emotionally disturbed.

Addition To The Family

The addition of a new member to one’s family brings in additional  responsibilities in terms of cost. In order to take care of the educational needs of one’s child or his/her  marriage or any other milestone, it is essential that the policy taken earlier is reviewed so that the additional monetary needs are fulfilled.

Also, it is essential that the child be added in the family floater policy or as a beneficiary in the current existing policy. In an age of inflation, planning for the future of one’s child is essential so as to ensure that there is no financial strain.

Taking a money back policy to coincide with milestones that entail a significant outflow of funds will ease the financial burden, going forward. Therefore, it is essential to do a policy review. If needed, you could even plan on changing the type of policy you currently have. For example, you can switch to a money back policy from a term policy.

Marriage Or Separation

If you have tied the knot, you may want to add your spouse as a beneficiary. Also if your spouse is a dependent, you may have to double the coverage.

If your spouse is employed, you may either want to have a joint policy or independent policies. Hence, depending on the situation, you may need to review your policy and make provisions for the requirements.

In case of separation, you may want to remove your ex-spouse and add another family member as a nominee.

Take into consideration any dependent you have to take care of even if you are undergoing a separation from your spouse.

Mentioned here are some instances  that necessitate the review of an insurance policy. Sometimes, there could be a typo error in the insurance policy you had taken earlier.

If you review your policy in a timely manner, necessary steps can be taken to ensure that the typo error is corrected and there is no trouble at the time of submitting claims.

Should you opt for a new insurance policy when a change is needed to be made or should you try to accommodate the requisite changes in the existing policy? Moving to a new policy is never a good idea because it will entail higher costs as premiums are based on several factors such as age, occupation and family history.

You may have taken your old life insurance policy when you were younger, therefore, the premium would be lower due to the age factor.

It is always advantageous to add riders/features to your existing policy rather than buying a new one as it would prove to be cheaper.

If you feel that the rider is expensive, you can seek quotes from other insurance companies only for the additional coverage you need. This will minimize the premium outflow  when the two - the old and new policy - are put together as against taking a completely new policy for the required coverage.

We now get to the key question, how often should you review your policy? While it is best to review the policy when any of the mentioned changes have taken place, it is quite possible that you may overlook them in the daily scheme of things.

Most policies have to be renewed annually, which is an automatic trigger as it gives you the opportunity to do a rain check and see if any changes need to be made in any form - be it addition of a beneficiary or an increase in the policy coverage.

While all this may seem to be an overtly cautious approach, if you look back at the last five years of your life, you will be pleasantly surprised to see the kind of changes that may have happened, making your policy coverage inadequate to take care of your dependents/family.

Insurance is a financial instrument, which gives you the opportunity to plan the financial security of your family. Any lapse from your side may impact the future of your loved ones. So be proactive and take the necessary steps to ensure the financial security of your loved oneS.