Change is a necessary part of life. We go through different stages of life and our needs and circumstances keeps changing through these stages. You go to college, receive our first salary, get married, become a parent, retire and to survive through all these different phases, you should have the capability to adopt according to the changing situation. A person who is adaptable to changes faces less resistance with life and is able to enjoy every moment of it.
The same concept is applicable to your life insurance policy. The policy which you bought some years ago may not fulfill your current requirement because at the time of purchase of the policy, your financial obligations and situations were different from the current one. With the advancement in age, responsibilities increases and it becomes necessary to review your life insurance portfolio according to changing financial needs and circumstances. So we have mentioned some important reasons to review your life insurance portfolio in this article
Change in Lifestyle
Change in lifestyle is applicable to everyone during their life and with the increase in income, your lifestyle also evolves into high standards of living. You may shift to posh area, buy a new car, add facilities to your home to make your life easy, shift your children to better schools, but you must understand that the upgradation in your lifestyle needs to be backed up with upgraded life insurance cover also. It will help your family enjoy the same lifestyle even in your absence.
Change in Income
Everyone loves a hike in their salary because it allows them to widen the limit of their expenditure and savings. With the increase in income, cash flow also increases and it becomes necessary to enhance your life insurance cover accordingly. The base of calculating your cover for life insurance policy is your income. A Human Life Value (HLV) helps you to decide your cover for life insurance policy because it takes income as the base. A right cover is seven to ten times of your actual net worth.
If you lose your job or your income gets steeper due to uncertain circumstances, then review of insurance portfolio becomes necessary. You may wish to lower your insurance premium due to financial obligations or surrender the policy in a worst case scenario.
Must Read : Affordable Life Insurance Policy in India
While talking about the inflation, considering the time value of money is imperative. Time value of money explains that the value of money keeps depreciating with time due to inflation. The value of a Rs.100 note in today’s date will not be same in the future and that’s why to tackle inflation, you need to upgrade your life insurance policy also.
Becoming a Parent
Turning into a parent is one of the best feelings of life, but you also need to realize that your responsibilities also increase with the addition of a new family member in your house. And that’s why when you turn into a parent, you need to enhance your life insurance policy also because the number of dependents is one of the main factors while deciding the amount of cover in your life insurance policy. Increase in number of dependents means enhancement in the cover of the life insurance policy.
With the increasing assets and the passage of time, you achieve most of your financial goals and you are able to accumulate enough wealth to support your family. This is the time when you should consider decreasing your life insurance. When you were young, you don’t have enough saving and your family was dependent upon your every month income and that’s why your need of insurance was different while at an advanced age, your saving and assets increases and your need of insurance changes.
Loans And Debts
Loan and debts are one of the biggest responsibilities of life and a right life insurance policy acts as a risk management tool for your liabilities. With the passage of time, your loan and debt can also increase and in such cases, liabilities should be backed up with a modification in life insurance policy. Your liabilities were different at the time of purchase of policy and it may not sufficient for your current loan and debts. So increase your amount of cover with increasing liabilities.
New Long Term Goals
Long term goals need a proper financial backup for effective achievement. You might have set a long term goal like buying a home or a car at the start of your career, which can be added up with children’s education and marriage in later phases of your life. So to achieve newly added long term goals because of increasing responsibilities, you need to modify your life insurance policy accordingly.
Time to time review of your insurance portfolio will help you adjust your life insurance policy, according to your changing needs and circumstances. Just buying a life insurance policy is not enough for your whole life. So review your insurance portfolio at different stages of your life and enjoy the benefits of your policy as long as you want.