Insurance is oftentimes viewed as a static process. You buy life insurance, auto insurance, health insurance, and other forms of coverage, and place the policies in a drawer never to be seen again.
Insurance, just like retirement planning, is a fluid process. The changes we all experience on a day-to-day basis can trigger the need to review insurance coverages. Here is the first of two checklists, each identifying five life changes which should prompt a review of insurance coverages.
So much of our insurance coverage is intertwined with our jobs. Leaving one job or another, be it voluntary or involuntary, should prompt a thorough review and analysis of health, vision, dental, life, and disability. When possible, compare portable insurance options from your previous job to those available at your new job. If portable benefits from your previous job are more beneficial than options from your new job, by all means continue those benefits. This analysis should take in to account not just cost, but policy provisions. Be aware that you may have a limited time to elect to continue the portability of your prior insurances.
Purchased a Home
A home is usually the most valuable asset we own, other than our ability to earn an income. Make sure to evaluate your life insurance needs, particularly if you want a surviving spouse to have a home without debt. Also review homeowner’s coverage, umbrella liability coverage and disability insurance. A 1998 study conducted by the Federal Housing and Home Finance Agency revealed that only three percent of foreclosures occurred as the result of a homeowner's death, while 48 percent of foreclosures resulted from the disability of a homeowner.
Loss of a Loved One
The loss of a loved one is a financial game changer, especially if the loss is sudden and unexpected. You should revaluate each form of insurance you own, and other aspects of planning too — budgeting, retirement, insurance, tax, investments and employee benefits. Change life insurance beneficiary forms as needed and cancel coverages which are no longer needed. For example, cancel life insurance on the surviving spouse, which was needed only to provide for the now deceased spouse. Alert your auto insurance carrier, and contact your long-term care carrier to see if your premium is waived since your spouse passed away (some policies are “paid up” if one of the insured dies)
Birth of a Child
Health insurance and life insurance are two forms of coverage which need to be tweaked when a new child is born. You may simply need to add your new dependent to your health insurance, and determine the amount of life insurance that should be in place. The right amount of life insurance is tied directly to your life goals. If you want to provide a home without debt for your family and a college education fund in the event of your death, make sure you have enough. Also, consider whole life insurance for your children as a way to protect their insurability and to help them develop a robust insurance portfolio
Estate Distribution Planning
Insurance should also be reviewed when beginning to plan the distribution of your estate, regardless of the size of your estate. Perhaps you can terminate your health insurance and enroll in Medicare. It may be a good idea to terminate your disability coverage and shift those premiums to long-term care insurance planning. If you are retired and traveling the world, make sure your health insurance coverage protects you overseas. Also, consider second-to-die life insurance coverage which pays a death benefit at the death of the second insured, if there is estate tax due or you want your beneficiaries to have a solid financial foundation.
The next checklist will address insurance concerns at marriage, divorce, receipt of a financial windfall, ownership in a business, and when there is an illness or accident.