3 Reasons You May Need to Increase Your Life Insurance Coverage

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A death benefit that once made sense could become too small over time.

Key points

• Life insurance coverage is intended to protect loved ones.
• In some cases, life changes necessitate a larger death benefit.
• There are several reasons why buying more insurance coverage could become necessary.

Life insurance coverage is important for most people. The policies may pay out a death benefit after the covered person dies. Family members may rely on this money to pay the bills the deceased person used to cover, or to pay for services the deceased provided.

When buying a policy, the policyholder must decide how large the death benefit should be. And in some cases, the size of the death benefit will need to increase after the policy has originally been purchased. Here are three situations when increasing that coverage may become important. 

1. Getting married

Most people take on joint financial commitments when getting married. This could mean shared debt, such as mortgages or car loans. And people also get used to a certain standard of living based on their combined income with their spouse.

When someone new depends on a policyholder’s income, this is a clear situation where more life insurance is necessary. Buying additional coverage could enable a surviving spouse to stay in a shared home, pay off joint debt, and continue living the type of lifestyle the couple enjoyed after getting married and combining finances. 

2. Taking on new financial responsibilities

When a person dies, their financial responsibilities do not necessarily die with them. 

If an individual borrowed a lot of money, for example, creditors could make a claim against his or her estate to try to recover the unpaid funds if the debt has not been paid off upon a death. Or if someone started paying nursing home fees for aging parents, the nursing home isn’t just going to stop charging upon the paying-child’s death. 

No one wants their entire estate to go to creditors, and no one wants to leave their responsibilities unfulfilled. As a result, it’s a good idea to increase life insurance coverage when making new commitments. 

3. Having a child

Having a child means taking on substantial additional expenses. Children are very expensive to raise to adulthood, and the cost of educating kids can be astronomical. Obviously, every parent wants to make sure their child is provided for and there is money available to cover that child’s needs. This is true even if the parent passes.

Since adding a child means adding a new — and costly — dependent, it almost always makes sense to buy significantly more life insurance coverage after a baby comes onto the scene. This is also true even for stay-at-home parents. The childcare and other services they begin providing once a baby arrives is worth a small fortune and someone might have to be paid to provide this care in the event of the parent’s untimely death.

These are just three of many examples of situations where increasing life insurance coverage could be necessary. Basically, any person with life insurance should typically buy more after any big life changes that leave others more dependent on the covered individual. It’s far better to get this coverage in place ASAP than to pass away without it, so acting quickly after a change in circumstances is generally the best course of action.