How can I increase my life insurance coverage? Life insurance is meant to protect you and your family financially when life takes unexpected turns. As your life and responsibilities change, so do your financial needs. If your situation is different from when you first bought the policy, it’s a good idea to review your coverage and increase it.
You’ll want to make sure that the payout from your policy would cover your financial obligations and help your family keep their standard of living if something happens to you.
You might think about increasing your coverage if you’ve taken on new commitments, like welcoming a new child, buying a home, or co-signing a student loan. In this article is everything you need to know on how to increase your life insurance coverage.
How Much Additional Life Insurance Do You Need?
Once you’ve decided that you need more life insurance, the next step is figuring out how much extra coverage to get. The key is to look at the gap between what you currently have and what you really need to protect your family.
Start by asking yourself: How would my family manage financially if I passed away tomorrow? List all your current financial responsibilities, and then add future ones such as childcare, bills, education costs, debt, mortgage payments, and everyday living expenses.
If you’ve just bought a house or have a parent who needs extra care, those costs would also fall on your loved ones. Adding these up gives you a clear idea of how much more life insurance you should aim for to make sure your family is financially secure. From this total, you can determine if you need more life insurance and exactly how much to get.
When Should You Increase Your Life Insurance Coverage?
Let’s take a look at some examples and situations when increasing life insurance coverage should be considered:
• Your family has grown
Marriage means looking out for each other, and life insurance can help by providing financial support if one of you passes away. Having a child is a joyful moment but also costly.
Raising a child can cost over $200,000, and if one parent passes, covering those expenses can be tough. Life insurance can ensure your partner and children are financially secure.
• Your financial responsibilities have increased
If you’ve taken on more financial commitments, like starting a business, caring for an aging relative, or buying a new home, it’s a good idea to boost your life insurance coverage. It will give you peace of mind knowing that these responsibilities won’t burden your family if something happens to you.
• Your family’s employment situation has changed
Got a raise or promotion? That’s great! But with a higher income, you might want to adjust your life insurance to reflect that. Also, if your spouse has stopped working, you may need more coverage to protect your family since you’re the sole earner.
• Your long-term needs have shifted
Life insurance helps support loved ones after you’re gone. If someone in your family has a chronic illness or a life-changing injury, increasing your coverage can ensure they get the care they need in the long term.
• You’re planning your estate
When planning your estate, life insurance can be a valuable tool for leaving an inheritance. For example, if one heir is inheriting a family business or property, life insurance can help provide an equal financial share to other heirs. It’s a meaningful way to leave a legacy and show your care.
If any of these life changes apply to you or if you feel your current life insurance isn’t enough, consider increasing your coverage. It’s a simple way to ensure your loved ones are well taken care of.
How to Increase Your Life Insurance
Now that you understand the importance of reviewing your life insurance, let’s look at some easy and potentially cost-effective ways to increase your coverage.
There are four main options to boost your life insurance.
Option 1: Top up your current plan
One way to increase your life insurance is to top up your current plan. Many term life plans offer a top-up option, which is often the simplest and most affordable way to increase your coverage. These plans adjust to your changing needs.
Keep in mind that
- If you have an increasing term plan, your coverage goes up automatically each year, but your premiums will also increase.
- Life-stage growth plans raise your coverage when you reach milestones like marriage or having a child.
- Some term plans don’t offer a top-up option, so you’ll need to look into other choices.
Option 2: Buy a new term plan
Another option is to purchase a new term plan with extra riders. This usually costs more and involves additional paperwork, including medical tests.
Make sure both insurance companies know you have multiple policies to avoid complications when filing a claim.
Option 3: Convert your term plan into a whole life policy
Whole life insurance lasts your entire life, meaning your loved ones will get a payout no matter how long you live. It also allows you to increase your coverage, and it builds cash value that you can withdraw later.
However, whole life policies tend to be costly, harder to find in some markets, and often unnecessary for most people. Plus, the cash value can be taxed, and the premiums are typically much higher. Avoid whole life policies; they are expensive and complicated.
Option 4: Add riders to your existing plan
Riders are extra features you can add to your current plan, offering more coverage at a lower cost. Some common riders include:
- Accidental death benefit: Adds more coverage if you die in an accident.
- Permanent or total disability rider: Helps in offering support financially if you become unable to work.
- Critical illness rider: Helps cover the cost of treating a serious illness listed in the policy.
You need to know that
- You can add more than one rider to your policy.
- The cost of health-related riders should not exceed 100% of your base policy premium.
- Other rider premiums should stay under 30% of your original policy premium.
Topping up your plan or adding riders are the simplest ways to boost your life insurance coverage.
