Importance Of Reviewing And Updating Your Term Insurance Policy

Rahul is celebrating his 18th birthday in a week. He is not able to hold his horns and invites all his friends to a big birthday bash at home. He counts down every single day to enjoy his big-man day! His parents get him a new phone, and his happiness knows no bounds. Rahul checks every single detail of his phone and sees a setting that says “software update”. He asks his mom about it. She says that outdated software on the phone can make it slow, inefficient, or vulnerable to bugs.

When they were discussing this, Rahul’s dad was reminded of his term insurance policy. He purchased it 3 years back and has been paying his premiums duly. He could resonate with what his wife said about software updates to his term insurance plan. Failing to review and update his term insurance plan can lead to inadequate coverage or other setbacks. He knew that regular updates ensured everything was smooth, efficient, and secure.

It is true. Term insurance policies have to be constantly reviewed and upgraded based on your changing life circumstances. In this article, we will explain how to review and update your term insurance policy while also staying in line with your goals to face new challenges.

Reasons To Review Your Term Plan Regularly

Let’s look at a few reasons why updating your term plan is the best move for your family’s changing needs -

➔ Shifting Financial Priorities
Life doesn’t stay the same because change is the only constant. In such a case, your financial needs change as well. One day, you are a young professional who just finished college by taking an education loan, and your primary responsibility is to pay it off. Fast forward a few years, and now you are married with kids. This is the time you buy a house for your family. You are now thinking about protecting your home and saving for your kids’ college education. This is why you should regularly check on your term plan to make sure it matches your current financial situation, no matter how much it changes.

➔ Income Ups And Downs
Your income isn’t always steady, right? You can get promotions, job changes, or even layoffs, which can make your financial plans a little unstable. For instance, you get a hike in your salary and improve the standard of living of your family. You might now need to buy more coverage to ensure your family keeps living comfortably if anything happens to you. On the other side, say you switch jobs. You accept a job that you are passionate about for a lesser pay. You will now want to see if those premiums are still manageable. Checking your term plan regularly helps you stay aligned with your ever-changing financial reality.

➔ Fluctuating Debt Situations
Your debts can change like the weather, right? You may either pay off your existing loan or secure a new one, and with it, your insurance needs change, too. Let’s say that you pay off a huge portion of your mortgage or other debts when you sell an ancestral property. In such instances, you may not need as much coverage now. But if you have taken on new debts, you might need more coverage to make sure everything is covered if life throws you a curveball. Regularly reviewing your term plan helps keep your financial safety net strong and adaptable.

➔ Impact Of Inflation
Did you know that inflation reduces the value of money over time? According to a report by the Ministry of Statistics and Programme Implementation (MOSPI)[1], India's inflation rate as of May 2024 is 4.75%.

This is why it is crucial to review your term plan regularly to make sure the cover amount still matches up with what your family needs to maintain their lifestyle if anything were to happen to you. You should not let inflation sneak up on you; rather, stay ahead with regular check-ins on your term plan.

➔ Keeping Beneficiaries Up To Date
Do you want to know why? Let’s understand it better with an example - Eddie recently got married to Kathy. He invested in a term insurance policy with a sum assured of Rs. 30 lakhs and nominated his wife as the nominee. 3 years later, Eddie applied for a divorce as things didn’t go well between the two of them. He now doesn’t want Kathy to be his nominee for the term insurance policy. What do you think he should do? Update the nominee details, of course!

People you want to protect today might be different from those you had in mind when you first set up your policy. Regular reviews are essential to keep your plan current and effective. By conducting periodic evaluations, you can ensure that all aspects of your plan, including beneficiary designations, are up-to-date and aligned with your current life circumstances.

It helps keep things clear and straightforward for the future.

➔ Staying Updated With Regulations
Insurance rules and tax laws can shift over time. These changes can affect your term plan benefits and the conditions associated with them. So, how do you think you should cope? By staying informed and reviewing your policy regularly, you can stay in line with current regulations. This makes sure that you are getting all the tax benefits* you are entitled to. With a little proactiveness, you can make your plan work smarter for you.

➔ Integrating With Financial Strategy
You can compare your term life insurance review as a vital piece of your larger financial puzzle. For instance, Bobby bought a term insurance policy to protect his loving family with a sum assured of Rs. 25 lakhs and a policy term of 20 years. Two years later, he is happily married with kids. He foresees that his sum assured may not suffice his family with their growing needs. He thus buys an another cover with a sum assured of Rs. 20 lakhs.

When you regularly evaluate your insurance needs, you are basically reconfirming that your financial plan works well. And because of this, you get the confidence that your family’s future is well protected and your financial strategy is on point.

➔ Ensuring Peace Of Mind
Ultimately, the most important reason for consistently reviewing your term plan is to ensure that you have peace of mind. It gives you a genuine sense of comfort to know that your insurance meets your needs in connection to your and your family’s future goals, financial status, and life stage. You can feel secure knowing that your dear ones are taken care of no matter what happens.

Wrapping Up!

It is crucial to routinely review and update your term insurance policy. Your life needs to alter as your circumstances change, such as when you get married, have children, or start a new career. Hence, you should make sure that you have adequate coverage for your family by constantly upgrading your insurance. You can also remain informed about any new perks when you do so. It will ensure that your coverage serves your needs and those of your familys’.