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Increasing Life Insurance Policy Death Benefit

Financial planner Neal Frankle wrote a post this week on the blog Fivecentnickel.com, about how surprised he was to find while updating his financial plan, that he did not have enough life insurance coverage and actually needed to buy more.

Fortunately for Frankle, he realized in time that the financial needs of his family had changed – whether that change was due to inflation, increased standards of living, or even just increased financial needs associated with aging.

But most people aren’t so lucky. Many consumers look at life insurance as one of those policies you buy and then forget about. Pay the premium every year, and you never worry about it again. But your life insurance policy will probably need to evolve just as your entire financial plan does.

Some things to consider when weighing whether or not to update your life insurance policy include:

  1. Has your income increased? As your income increases, generally, so does your standard of living. This means that your family may need more money after your death to keep them living in the style that they become accustomed to. If your income increases and your lifestyle (and spending) remain unchanged, then you can probably keep your policy unchanged.
  2. Has your debt increased? The more debt you have, the more of your death benefit your family will need to spend paying it off after your death. If your debt is higher than it was when you purchased your policy, you may want to consider buying an additional policy or increasing the death benefit of the policy you have.
  3. Are you meeting your savings goals? If you are having trouble saving as much money as you had planned in order to pay for your children’s college education or retirement, then consider the tough spot your spouse will be in if you should pass away. Increasing your life insurance policy death benefit to compensate for missing savings goals can help.
  4. So every year that you review your financial plan, remember to also review your life insurance policy.


February 25, 2011



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