How Often Should I Review My Policy?

You purchase life insurance to help reduce your risk in the face of life’s uncertainties. In exchange for a certain premium, which you pay monthly or yearly, the insurance company pledges to pay out the amount insured to your beneficiaries, if the event for which insurance has been purchased occurs. But once you have purchased insurance, this is not the end of it.

Over the passage of time, you have to make sure there is enough cover for your needs as your circumstances change. Hence, it is useful to consider how often you should review your life insurance policy.

As a prudent rule, it is probably useful to review your life insurance policy, along with the rest of your investment portfolio, to evaluate their adequacy for you and your family’s current and prospective financial requirements at least once every two years.

It is also good practice to review your policy when any significant changes occur in your economic situation, your lifestyle and your career.

When you undertake a review of your existing insurance coverage, you may find that one (or more) policies need to be enhanced – or even replaced with a better product – because the pay-out is no longer sufficient.

If this is the case, ‘in your best interest’, should always be your guiding principle. With this in mind, here are a couple of pointers that could prove to be useful when doing an evaluation:

If your existing life insurance policy has an investment component (often referred to as the cash value or surrender value), your premiums will have included payments both for life cover and for participation in an investment fund managed by the insurance company. The key thing to examine is whether the new life insurance policy will have an investment component; modern policies are likely to have none. If they don’t, check that the premiums are proportionally cheaper.

If your existing policy carries a guarantee that the premium rate will remain level over the whole term, check for a similar guarantee on the new policy because – more often than not – the newer policies will offer a limited guarantee period only. The quotation you receive for a new policy should specify what the length of this period is. Once it expires, the premium rate is reviewed and there is a likelihood that your premium will increase (although again, it might not). The point is that the premium will be fixed only during the specified term – not for the full term. What is initially low will not necessarily remain so.

Your risk profile may have changed since the time you first bought your existing policy. On the one hand, you may have since quit smoking, which makes you a better health risk. On the other hand, an adverse medical condition may have been diagnosed, which makes you a greater health risk. Such changes in lifestyle or health status should be disclosed to your insurance broker from the outset, so that the product quotations can be properly compared against your existing life insurance policy.

You will need to know the more precise details, conditions and definitions involving cover for disability, trauma and dread disease. Terminologies may differ from one company to the next, and there may be variations in the level of cover assigned to each of the different conditions. Modern policies also tend to use a sliding scale in the amount of pay-out. This is normally determined by the type of medical condition or the degree of severity. Be sure to compare apples with apples when evaluating these policies.

The biennial review of your investment portfolio, especially your life insurance policy, is a good way to assure yourself that the financial provisions you have made for the future, remain adequate. In exchange for a little bit of effort you gain much improved peace of mind, in return.