How to review and update your life insurance?

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Life insurance is a vital financial tool that safeguards your family against the unexpected. Life insurance policies are considered one of the stepping stones for wise financial planning for a number of reasons.

  • Firstly, it ensures financial security for your family in the case of your unexpected death.
  • Secondly, it functions as a long-term investment, providing assured returns in most situations.
  • Thirdly, Section 80C of the Indian Income Tax Act provides tax benefits for life insurance products.
  • Fourthly, it can provide savings for retirement when your income is restricted.
  • Fifthly, specific life insurance plans also cover serious diseases or disabilities, providing financial assistance in such cases.
  • Sixthly, it may be used to attain specific financial objectives, such as children’s education or marriage. Finally, term insurance allows for substantial coverage at modest prices. 

Nevertheless, just buying life insurance is not enough. It is important to review and update your life insurance plan regularly. Life is filled with changes; therefore, your insurance policy should adapt accordingly. This review will make sure that your insurance is still in line with your changing financial goals and life circumstances.

Steps to review and update your life insurance –

∙       Annually review

It is necessary to review your life insurance every year because your financial situation and responsibilities may change over time. An annual review provides you with the assurance that your policy is updated as per your requirements and reflects your current financial status.

∙       Evaluate life changes

Significant life changes like marriage, having a baby, buying a house, or getting a raise can change your financial commitments. These events should prompt you to assess your life insurance plan to see if it is in line with your new responsibilities.

∙       Evaluate the performance of the policy

If you have a Unit-Linked Insurance Plan (ULIP), you need to keep track of its performance. This refers to comparing its returns with other investment options to ensure that you are getting the best value for your money.

∙       Assess the cover amount

 The coverage amount should be enough to take care of your family’s financial needs in your absence. These include day-to-day expenses, debts, children’s education, spouse’s retirement, etc. If your current cover is less than adequate, you will need to increase it.

∙       Update the details of the nominee

If your family structure has changed – marriage, divorce, or birth – make sure that your nominee’s details in the policy are up to date. This is very important because, in the case of your death, the policy benefits are paid to the nominee.

∙       Check the method and amount of premium payment

Check your premium payment method and amount. If your income has increased, you might want to think about switching to an annual payment mode or increasing the premium to get more coverage.

∙       Assess added riders

Riders are additional features that can be added to your basic policy at an extra cost. If your lifestyle or health has changed, consider whether your riders are still appropriate or whether you need new ones.

∙       Assess policy term

The policy term should be long enough to cover your longest financial obligation like a home loan or children’s education. If it isn’t, then think about lengthening the time frame.

∙       Evaluate health changes

The insurance industry is in a constant state of flux. A new product may be more appropriate for your needs. Check if your current policy is the best one in the market by comparing it with others.

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∙       Review for better options

The insurance market is always evolving. New products may better suit your needs. Compare your existing policy with those of others in the market to see if switching is beneficial.

∙       Update contact information

Make sure that your address, phone number, and email in this policy are up to date. This will also enable the insurer to contact you for important communications.

∙       Understand policy characteristics

You should be aware of all the details of your policy, including its features, terms, and conditions. This includes knowing how the death benefit is paid, the policy’s maturity benefit, and what is excluded.

∙       Review the claim settlement ratio

This is a major criterion which shows the credibility of an insurer. If the insurance company’s claims settlement ratio is low, it may be a good idea to switch to another insurer.

∙       Assess the investment component

Check the investment component of your policy like ULIP or endowment policy to see if it is growing as per your expectations.

∙       Get in touch with a financial advisor

A financial advisor can give you a professional opinion on whether your current policy is enough or if there are better options out there.

∙       Regular premium payments

Regularly paying your premiums will make certain that your policy is not terminated. If it does expire, your coverage will stop, and you may not get fully compensated by the policy.

∙       Understand tax implications

Life insurance policies are tax-free under Section 80C. Realise the advantages and how they relate to your policy.

∙       Policy surrender or loan options

It is important to understand the terms and circumstances before surrendering your insurance or taking out a loan against it. These choices should be used with caution as they may influence the policy’s benefits.

Final thoughts

Life insurance, unlike other traditional financial instruments, is not a ‘one-time’ investment. It needs to be monitored and revised frequently to make sure it keeps working smoothly. Through the procedures given above, you can make sure that your life insurance policy remains in line with your changing circumstances and financial goals. Remember that a revised life insurance policy is a reliable armour that protects the financial future of your family.

Hence, life insurance is a pledge that requires you to be dedicated and to make a regular review. Ensure that you check out and renew your life insurance coverage on a routine basis. By doing so, you will not only secure the financial future of your family and the safety net you have created but also ensure that this safety net is adjusted to the changing lifestyles. It is a small but important step that will make your life insurance policy relevant and effective. 

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