Life is full of unexpected changes. That's why it's important to stay prepared and ensure you have the right life insurance coverage. This includes knowing what qualifies as a life-changing event for insurance. In this case, a life-changing event refers to a specific change in your life circumstances that would allow you to make adjustments to your policy outside the open enrollment period, providing an opportunity to make sure your coverage meets your and your family's needs.
What Qualifies as a Life-Changing Event for Insurance?
A qualifying life-changing event might mean a change in your job, income, location or marital status — all of which are factors that would warrant a review of your coverage. Other potentially qualifying scenarios include significant changes to your assets (what you own) or your liabilities (what you owe). Essentially, you should be mindful of any events that could have some bearing on your financial situation, responsibilities or legacy plans.
Generally, qualifying events for changes in insurance fall into two broad categories: family considerations and new responsibilities.
Any change in family status, household size or job can be a qualifying life-changing event. If you're getting married, expecting a new baby or starting a new job, you may want to reevaluate your life insurance coverage to ensure a stable and secure financial future for your loved ones.
If you're looking at your policy needs as a couple after a qualifying event, consider how the absence of either partner could impact the finances of the household. For instance, one spouse might choose to remain in the workforce while the other leaves it to provide care for a new baby or aging parent. A couple might also want to plan for the possibility of child care expenses in case the primary income earner becomes a surviving spouse. In that event, the spouse may incur expenses that the household didn't have to account for before, such as costs related to child care or other services intended to maintain the order and comfort of the home.
Divorce qualifies as a life-changing event too. In the event that you are going through a divorce, take time to review your policy, in addition to speaking with your attorney, to assess how coverage needs may change as a result. People typically make preparations to ensure that their children have direct access to death benefits, but sometimes divorce settlements can require one person to carry a certain amount of life insurance and name their ex-spouse as a beneficiary, even if there are no children involved.
Regardless of your marital or family status, when you take on certain financial responsibilities, it's a good idea to review your life insurance coverage and make sure it fits your legacy plans. When you purchase a new home, consider whether the person who could inherit the property might need help to pay the mortgage or other upkeep expenses. If the home will be left to a spouse with children, would there be enough coverage to pay off the mortgage and provide for other major expenses, such as college education?
If you have invested family resources into a new business venture, remember that your absence could mean the loss of expertise and knowledge vital to the success of the business. To account for this possibility, you could use life insurance to ensure that you leave behind resources that make future business decisions easier for your loved ones. In addition to replacing the income that your family needs to maintain their quality of life, life insurance coverage can help pay off business debt, protecting family assets needed to back the financing of your business. If your family wants to sell and there are other partners in the business, the policy benefits can be arranged to pay for a buyout.
Planning for What's Next
When big changes happen, updating life insurance coverage might not immediately come to mind, but it can help to think of it as you would think about keeping your health insurance policy current. Taking prompt action to handle what qualifies as a life-changing event for insurance can help you maintain your plans for your family's future and the preservation of your legacy.