You need to revisit your life insurance coverage whenever your household has a meaningful change in income - or every 5 years at a minimum - because the right coverage amount for you will change over time.
Failing to revisit your life insurance coverage amount can lead to one of these bad things:
- You’re placing your family at risk of being totally hosed if you die: your coverage would come nowhere close to covering what you contribute
- You’re wasting money on coverage you don’t need: your insurance need has declined over time but you’re still paying premiums on coverage that made sense years ago
#1: Placing Your Family At Risk if You Die
This typically comes up when lifestyles (and thus household expenses) have expanded with higher household income. While a $1 million 20 year term policy might have felt sufficient when you were not long out of grad school and expecting your first, it can be wildly inadequate if you’re now a mid-career professional with two or more kids (and now with direct knowledge of the cost of childcare and kids’ activities & educational enrichment, to boot!).
This can also come up if your family’s plans for “what would the surviving family do if a grown-up died young?” change. If you previously had a plan for a surviving parent and kids to move in with the grandparents, that might no longer be viable if the grandparents are now facing significant health challenges of their own. Or maybe everyone’s in fine health, but you’ve simply realized that would not be the preferred path for your loved ones. Goals and plans often change with time.
#2: Wasting Money on Coverage You Don’t Need
If your household income has been relatively stable and you expect it to remain that way, then the passage of time will usually reduce your need for insurance. That’s because one more year that you’ve lived and worked is one less year of income (or care provided for free) that your family would need to replace.
Having too much coverage also comes up if you ever signed up for a boatload of life insurance after a Very Persistent Agent continuously reached out to you when you were [in your first year at Big Law Firm] / [recently promoted to run the desk at work] / [insert other moment in life where you were making more money than you ever had previously]. But if you ultimately chose a different path - maybe you realized being a DA was more to your liking than corporate law - then you might be paying for too much life insurance.
You often do not need to apply for a new policy if you feel you have too much coverage. However, you should get a quote, to see if what you have is actually your best option.
Most major carriers allow you to reduce your coverage amount after a relatively modest number of years (generally after you’ve had the policy for 3-5 years, but it varies), so long as your policy does not fall below the minimum (varies by carrier, but often the minimum is around $250k coverage), and your premiums fall with the reduction. You do not need to go through another medical exam or provide evidence of your insurability. It’s just an administrative request.
In some policies, you have a contractual right to do this. In other policies, you will not see it, but if you call the carrier they may allow it.
We built our interactive Life Insurance Guide’s calculator to make it easy for clients to feel confident about the right answer to, “How Much Life Insurance Coverage Do I Need?” Ping us on chat so we can help you make sure you are carrying the appropriate life insurance for your current situation.