Our life changes very fast, before you realize you take on additional responsibilities. Just look back and think over the last big change in your life? It could have been taking marriage vows or cuddling your little one for the first time or moving in to your own house or taking on a bigger role at job or starting something on your own. It’s just amazing how we move through the phases of life without realizing the financial impact it has on us.
As we grow, our financial needs also change and so should your life insurance needs. For instance, your insurance plan that used to be sufficient in the past may no longer be adequate as you enter a new phase of life. This stands true, especially in case of term insurance plans. Term insurance plans, also known as pure protection plans, enable you to protect your loved ones in your absence. Term insurance cover is a foundation of any financial plan making you more confident about life by getting freedom against your financial commitments.
So, what makes us say that your term plan needs a revisit when you enter a new stage of life? The answer is simple- we underestimate the risk of being under-insured as we progress from one phase to another.
Often, we don’t even recognize that your insurance needs have changed until a life crisis hits. It is too late by then, and you are left to bear the full consequence of being under-insured. So, is there anything you can do to ensure that your term insurance adapts to the new phase of your life?
One simple trick is to re-look your coverage levels each time you enter a new life stage. Here are some common life stages that will have the greatest impact on your term insurance coverage.
1. When You Tie The Knot
Often, ‘wedding bells’ ring in the need to relook at the term insurance coverage you were carrying when you were single. Now term insurance is more significant because someone else is financially dependent on you.
When you get married, your lifestyle changes which leads to more financial obligations. With your spouse now dependent on you, your responsibilities inevitably increase. To make sure that you fulfil your responsibilities and take care of her in your absence, your term coverage should help guarantee that your partner has the money to maintain his/her present way of life. With this regard, opt to increase your coverage once you get married.
2. When You Become A Proud Parent
Your newborn child will bring many changes to your household, including your insurance needs. Birth of your child should mean boosting your term insurance coverage to account for the future cost of raising your child, including college. Here’s why:
When your family is entirely dependent on your income, and you pass away without having adequate term coverage, the consequences could be disastrous. Hence, you need to ensure that your spouse and children can continue their life at the existing standard of living, even in your absence. In short, your term plan should have the capacity to support your child’s education as well as cover everyday living costs.
3. Change of Job –Increase in Life Risk or Income Increase
If you move on to a riskier occupation and/or you get a salary hike, consider increasing your term coverage too. Your loved ones will enjoy a higher quality of living that might be jeopardised if you fail to revise your term plan.
In simple words, anytime your salary is adjusted, or you change your occupation, consider amending your term plan accordingly. In case of your unfortunate demise, your loved ones can continue living comfortably instead of scrambling to meet the loss of your extra salary.
4. When You Are Taking a Home Loan
Consider increasing your term insurance coverage to cover the amount of your home loan. A term cover will protect your loved ones against losing the home in the event of your death before the outstanding mortgage is paid up.
While the term insurance plan will not lessen the emotional pain of losing you, it will at least ensure that the outstanding loan amount is not something that your family has to worry about.
5. When You Are Starting Your Own Business
One of the most common mistakes business owners make is neglecting to increase their insurance coverage when they start their business.
It's a simple blunder to make: Money is tight, and with many things on your mind, adequately insuring yourself against the likelihood of some faraway fiasco simply doesn't appear that essential. But, it doesn't take much to crush all that you have worked so hard to build.
Therefore, be sure that your term insurance coverage is set high enough to cover business debts that your family could be held responsible for when you die.
6. Every 5 Years – To Keep Inflation in Check
You may think that your term insurance is adequate enough for your family’s financial security. But, have you assessed whether the cover amount would be sufficient to meet the requirements of your family in the future, considering the soaring inflation? Maybe not.
Therefore, to keep inflation in check, increase your cover every 5 years in order to provide a steady income to your family after your demise, while allowing them to maintain their lifestyle without making any compromises.
Entering a new life stage can be exciting and daunting. While you have new experiences to look forward to, it also means making important decisions in both your professional and personal life.
Critically, it is this time you must not neglect the insurance gap a new phase in life creates. Whether it’s a home loan, the birth of your child, or even switching to a high-risk career, it’s always worth spending the time to identify right term insurance plans that can help bridge the insurance gap for yourself and your family.