8 Events That May Affect Your Life Insurance Needs

Main takeaways

• Major life events—like marriage, having kids or buying a home—can change how much life insurance you need.

• Both breadwinners and stay-at-home parents should be covered to protect against unexpected financial gaps.

• Regularly reviewing your policy ensures your loved ones and dependents remain financially secure through life’s changes.

If you purchased life insurance for your loved ones, you've already made an important step toward securing their financial future. However, it's likely that your family's money needs will change over time. Your policy should, too.

The following are some of the key events that could affect the amount and type of coverage that you'll need to protect those who depend on you financially. When moments like these are on the horizon, it's important to review your coverage with your insurance representative to make sure they're secure.

1. Getting married

As a newly married couple, you're naturally focused on the special moments you both plan to share. But it's also important to make sure your spouse is taken care of financially should the unforeseen happen. Take a look at your major expenses — from housing and utilities to groceries and loan payments — and make sure you have coverage that can fill in any gaps if you were no longer there to provide income.

A permanent life insurance policy provides a death benefit that goes to your beneficiaries when you pass on, as well as cash value that you can tap during your lifetime. Term coverage, on the other hand, only offers a death benefit; it's also only in effect for a certain number of years. Term policies cost quite a bit less for the same death benefit, so they're a good option if you can't afford permanent life insurance.

2. Raising children

As any new parent soon realizes, the cost of raising a child is startling. When accounting for inflation, the average middle-income couple is projected to spend $284,570 raising a child through age 17, according to the latest data from the U.S. Department of Agriculture. That's why it's absolutely crucial to make sure both spouses have the protection they need should one of them pass on unexpectedly. When your children are still very young, even primary breadwinners may need financial support for child care and other expenses that may increase over the years.

3. Becoming a stay-at-home parent

Nearly one in five parents stay home with their young children rather than work a full-time job, according to a Pew Research Center analysis. Should you or your spouse go down to one income, you'll want to discuss the potential impact should something happen to either of you. Even if the stay-home parent has the skills to go back to work, they may find that re-entering the workforce after a long break takes more time. Plus, you may have to consider child care and other expenses that may arise.

4. Buying a new home

Obtaining the right amount of life insurance means making an educated guess about your family's future expenses and earning ability without you. And if you purchase a new home, there's a good chance your family’s cost of living is going to increase significantly. This is a good time to review your existing policy, if you have one, and make sure your spouse will receive enough to live on. In addition to the cost of the mortgage itself, you'll also want to account for expenses such as property taxes, homeowners insurance and utilities. That way, even in the event of a tragedy, they'll have a better chance to stay in the home they love.

5. Changing jobs

If you receive a life insurance benefit through your employer, you'll typically lose that benefit when you leave. However, you may be able to convert your previous group insurance into an individual policy with premiums that you pay directly to the insurer. Often, these converted policies don't require a separate medical exam, which can benefit customers with pre-existing medical issues. Before doing so, make sure to compare the cost of similar policies at other carriers.

6. Starting a business

When you launch a small business, your family members aren't the only ones who could be financially impacted by your passing. It can also affect the ability of your company to continue operations and pay its outstanding debts. Often, businesses will pay for "key person" coverage  — essentially insurance on your life that allows business partners or other parties to manage bills or buy out your ownership stake. A financial representative can help design a policy that allows your business to weather the potential effects of your passing. 

7. Getting divorced 

As difficult as divorce is from an emotional standpoint, it can also make your financial situation more perilous. Often, divorce attorneys will include life insurance requirements in the settlement, spelling out the type and amount of coverage each party will maintain, as well as who has ownership over the policy. If you had a cash value policy prior to the divorce, a plan for handling those assets — including the potential to surrender and cash out the policy — should be part of the discussions with your attorney. 

8. Becoming a caregiver

Becoming a parent isn’t the only time you may have to take out a new life insurance policy — or increase the coverage on your existing one. You should really develop contingency plans any time you’re providing financial support to a family member or other individual. If you’re looking after an aging adult with limited means, for example, you may want to amend your coverage to provide support for their backup caregiver.

The upshot

Life doesn’t stand still—and neither should your life insurance coverage. By reviewing your coverage during major life changes, you can make sure the people who count on you are always protected.