3 reasons why you might need to increase your life insurance coverage
A death benefit that once made sense might become too small over time.
- Life insurance coverage is intended to protect loved ones.
- In some cases, life changes require a larger death benefit.
- There are several reasons why purchasing additional insurance coverage might become necessary.
Life insurance coverage is important to most people. Policies may pay a death benefit after the death of the covered person. Family members can rely on this money to pay bills that the deceased person used to pay or to pay for services provided by the deceased person.
When purchasing a policy, the policyholder must decide on the amount of the death benefit. And in some cases, the amount of the death benefit will need to increase after the initial purchase of the policy. Here are three situations where increasing this coverage can become important.
1. Get married
Most people make joint financial commitments when they get married. This could mean shared debt, like mortgages or car loans. And people also get used to a certain standard of living based on their income combined with their spouse.
When a new person is dependent on a policyholder’s income, this is clearly a situation where additional life insurance is needed. Purchasing additional coverage could allow a surviving spouse to stay in a shared home, pay off joint debt, and continue to live the type of lifestyle the couple enjoyed after getting married and combining their finances. .
2. Take on new financial responsibilities
When a person dies, their financial responsibilities do not necessarily disappear with them.
If a person borrowed a lot of money, for example, creditors could make a claim against their estate to try to recover the unpaid funds if the debt was not repaid upon death. Or if someone started paying nursing home fees for aging parents, the nursing home isn’t just going to stop charging when the paying child dies.
No one wants their entire estate to go to creditors, and no one wants to leave their responsibilities unfulfilled. Therefore, it makes sense to increase life insurance coverage when making new commitments.
3. Have a child
Having a child means incurring substantial additional expenses. Children are very expensive to raise to adulthood, and the cost of raising children can be astronomical. Obviously, every parent wants to make sure that their child is taken care of and that there is money available to cover that child’s needs. This is true even if the parent dies.
Since adding a child means adding an expensive new dependent, it almost always makes sense to buy much larger life insurance coverage after a baby arrives. This is also true even for stay-at-home parents. The babysitting and other services they start providing once a baby arrives are worth a small fortune and someone might have to be paid to provide that care in the event of the parent’s untimely death.
These are just three of many examples of situations where it may be necessary to increase life insurance coverage. Basically, anyone with life insurance should generally buy more after any significant change in their life that makes others more dependent on the person covered. It’s far better to get this coverage in place as soon as possible than to die without it, so acting quickly after a change in circumstances is usually the best thing to do.
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