The Importance of Reviewing Your Term Insurance Policy Regularly

When you purchase a term insurance plan, you often think about your current income levels and your future plans. Buying a ₹1 crore term plan can look sufficient if you are a 23-year-old bachelor who just landed their first job. However, the financial needs, number of dependents, and life goals keep changing with different milestones. For example, when you get married, your life goals change. When you have children, you start planning for their education. When you reach your 40s, you think more seriously about retirement.

Hence, buying a term insurance policy is not enough. You need to constantly review it, evaluate its relevance and coverage and whether it is enough to meet your evolving needs. Regularly reviewing your policy is crucial to ensure it aligns with your ever-evolving needs and secures your loved ones' future. A well-reviewed policy lays the foundation for sound long-term financial planning.

Key Events That Should Trigger a Policy Review

Ideally, you should carry out a periodic policy review. However, this might not be feasible as you are often caught up with different life responsibilities. We have made a list of key events that should trigger a policy review:

1. Change in Marital Status: The total number of financial responsibilities has increased if you recently married. You must plan accordingly and include your partner in all your financial decisions. Hence, increasing coverage and updating the nominee of your term insurance are two critical steps that you often take post-marriage. Conversely, divorce might necessitate revisiting your nominee's details or adjusting the coverage based on your new circumstances.

2. Childbirth: Your financial obligations automatically increase if you are recently blessed with a child. You need to take care of the added lifestyle expenses. Further, you must plan for future expenses such as education, upbringing, and marriage.

3. Financial Milestones: You should consider an increase in income or major investments as financial milestones. Enhancing your policy’s coverage is wise for matching your new financial goals. If you have recently invested a large amount in a house, it is important to increase the coverage to meet any home loan-related liabilities.

4. Health Conditions: If you or any member of your family has been diagnosed with a serious illness, you might want to safeguard your dependents and add critical illness or accidental death riders to your term insurance policy.

The Importance of Periodic Term Insurance Policy Review

The purpose of having term insurance is to ensure financial security for your family. However, the external environment is dynamic, and so is your life. The effectiveness of any insurance depends on whether it can align with your changing needs. Regular review is critical because it ensures adequate coverage, and the terms and conditions are relevant to your long-term goals.

Reviewing your policy also allows you to identify potential gaps in coverage, correct outdated nominee details, or adjust riders to include critical illness or accidental coverage. The policy can also include any changes in your lifestyle or attaining any life goals. Insurers also constantly update their offerings (such as new riders or add-ons), which might benefit your updated needs.

Reviewing Your Term Insurance Policy

Here is a step-by-step guide you can use to review your term insurance policy:

1. Compare the current coverage (sum assured) with your updated financial goals. Consider additional factors such as marriage, new loans, purchase of a new asset, or childbirth to work out the new requirements.

2. Always account for inflation while calculating your long-term financial goals. If you have a cover of ₹1.5 crores, you must review its value after 10 or 20 years from now.

3. Check whether you have availed add-ons and riders such as accidental death benefits, critical illness or permanent disability benefits. You can also ask your insurer for any new riders or features offered by your insurer that could enhance your policy.

4. Always update your nominee details that reflect recent changes in your personal life, such as marriage, divorce, or childbirth.

5. If you are unsure about evaluating coverage or do not understand the benefits of riders or add-ons, we advise you to contact a professional or investment adviser.

Common Mistakes to Avoid During Policy Reviews

Here is a list of a few common mistakes to avoid during policy reviews:

1. Do not postpone or overlook the need for increased coverage. Many people do not account for inflation and rising living costs, which can erode the value of the sum assured over time.

2. It is always important to take account of your life’s milestones as trigger points to review your term insurance coverage and riders.

3. Always factor in any changes in premium due to lifestyle changes (such as tobacco or alcohol usage). Also, try to consider any new occupational hazard that has become necessary to change the coverage.

4. Always update nominees when you hit a life milestone like marriage, divorce or childbirth.

Summing up

You have taken the first step towards your family's financial security by purchasing a term insurance policy with adequate coverage. However, you must understand that our economic world is quite dynamic, just like your personal life. You need to consider external changes (such as inflation) and consider important life milestones to trigger policy reviews. You can safeguard your family's future effectively by assessing coverage, updating details, and addressing gaps. Make periodic policy reviews a priority for long-term peace of mind and financial security.

FAQs

How often should you review your term insurance policy?

You should review your term insurance policy at least once every two to three years or during major life milestones like marriage, childbirth, or a significant change in income.

Can you increase the coverage amount of your term insurance policy?

Yes, you can increase the coverage amount of your term insurance by opting for a top-up or purchasing additional riders, subject to the insurer’s terms and conditions.

What factors should be considered while reviewing a term insurance policy?

Key factors include your current financial goals, inflation, family milestones, nominee details, and any new riders or add-ons offered by the insurer.

What happens if you don’t update your term insurance nominee details?

Failing to update nominee details can delay or complicate the claims process, potentially leaving your family financially insecure.