Life insurance is an important part of a well-rounded financial life. While you may not like the expense, life insurance is something most people need at various life stages.
However, buying life insurance isn’t always a “once and done” thing. Here’s when you should consider buying additional life insurance — and what to keep in mind when increasing your coverage.
When increasing coverage becomes a need
Change can be good. You may have received a substantial raise at work, or maybe you’ve welcomed another child to your family.
If you already have life insurance in place, great — you’re already in a better situation than many Americans. But you may find your new needs outpace the coverage your current policy provides. At that point, consider buying additional life insurance coverage.
According to Nick Planeta, director of Product Development for Unum, here are some of the times you may want to consider an increase in coverage:
- Adoption/birth of a child
- Increase in income
- Purchasing a home
- Child attending college soon
- Spouse leaving the workforce
- Significant new debt
What to keep in mind when increasing coverage
It’s important to look at your entire financial picture before buying additional coverage because every situation is different. A life insurance needs calculator can help you determine how much additional coverage you need. Consider what amount of coverage would help your family navigate the change in financial situation if you were to pass away, says Planeta.
Also look at what will comfortably fit into your budget when you buy additional coverage. If needed, consider cutting back on some expenses to free up additional money to buy coverage. If you haven’t maxed out the group life insurance options available to you through your employer, check out that option first. It’s often inexpensive and likely won’t require a physical, unlike adding an additional policy you buy on your own.
Plan ahead for your needs with laddering
Laddering is a common practice for those who invest cash in certificates of deposit. The idea is simple: Instead of tying up all of their cash at once, laddering a series of CDs allows them to get access to their cash at various intervals.
A similar philosophy can work with life insurance coverage. There are two main ways to ladder life insurance policies:
- You buy policies with differing term lengths at the same time.
- You buy one policy now, with a longer term, and add on shorter-term policies later in your career.
Laddering life insurance allows you to have additional coverage when you need it most. The key is anticipating your needs so you don’t over- or underestimate them. It’s best to consult a life insurance representative if you’re considering laddering policies to ensure you think through all your needs and get an independent look.
Are policy riders a good alternative?
Many types of life insurance allow you to add additional coverage in the form of a policy rider. A policy rider allows you to somewhat customize your policy for additional benefits. Some examples of a policy rider are a term conversion rider, or a child/spousal rider.
Policy riders can be a good option to introduce the benefits you need, but they do have their limitations.
“Policy riders are often designed to meet a specific need, such as coverage for your child,” Planeta says. “They’re useful supplements to your coverage but may have fewer options and less flexibility than additional policies. If you have no other option, a policy rider could be a good solution, but simply buying a new policy may be a better fit for your needs.”
Life insurance is an essential tool to protect your family, its finances and its future. As life throws change your way, don’t overlook the need to have additional coverage to fully protect the most important people in your life.