Life Insurance Check-Up: As Your Family Grows, Does Your Coverage Keep Pace?
The back-to-school season is in full swing. It’s a time of fresh starts, marked by new backpacks, sharp pencils, and shoes that finally fit. As you prepare your children for the year ahead, it’s also the perfect moment to take stock of your family’s financial preparedness. Just as your third-grader has outgrown last year’s sneakers, your family may have outgrown the life insurance policy you purchased years ago.
Many of us treat life insurance as a “set it and forget it” item on our financial to-do list. We buy a policy when we’re young or first married and assume it’s a permanent solution. However, life insurance is a dynamic tool. Its purpose is to protect your loved ones based on your life now, not the life you were living five or ten years ago. If your life has changed, it’s almost certain your insurance needs have, too.
So, what are the major signs that your coverage might need a check-up? Three key life milestones are powerful indicators.
1. You’ve Welcomed Another Child
Bringing a new baby into the family is a joyous occasion that also brings new financial responsibilities. According to 2022 data from the Brookings Institution, it can cost over $300,000 to raise a child to age 18—and that figure doesn’t even include the soaring cost of college. A policy that was adequate for one child’s future may leave significant gaps when you have two or three. Your coverage should ideally be enough to provide for each child’s daily needs and fund their future educational aspirations if you were no longer there.
2. You’ve Bought a Home (or Refinanced for More)
For most American families, a mortgage is the single largest debt they will ever take on. If you bought your starter life insurance policy while you were renting, it likely wasn’t designed to pay off a 30-year home loan. Your coverage should be sufficient to eliminate this debt, ensuring your family can remain in their home and community without the overwhelming financial stress of mortgage payments. The peace of mind that comes from knowing their home is secure is one of the greatest gifts you can provide.
3. Your Income Has Increased Significantly
A promotion, a successful career change, or a growing business are all reasons to celebrate. They also lead to a higher standard of living. Your family becomes accustomed to a certain lifestyle, and the purpose of life insurance is to help maintain that lifestyle in your absence. If your income has substantially increased since you first bought your policy, your coverage amount is likely based on an outdated salary. A good rule of thumb is that your coverage should replace your income for a set number of years, allowing your family time to adjust without financial hardship.
How Much is “Enough”?
A frequently cited guideline is to have life insurance coverage equal to 10-12 times your annual income. While this is a decent starting point, a more tailored approach considers your specific situation. A simple method to remember is DIME:
- Debt: Total all your debts, including your mortgage, car loans, and credit card balances.
- Income: Multiply your annual income by the number of years your family would need support.
- Mortgage: Ensure the full amount of your home loan is covered.
- Education: Estimate the future costs of college for each of your children.
Adding these figures together gives you a much clearer picture of your family’s true needs.
As you check off your back-to-school list, add one more item: a review of your financial safety net. It’s a simple, proactive step that ensures the people you love most are protected, no matter what the future holds. At TheBenefits.Guru, we believe in making this process clear and simple. A complimentary policy review can help you understand your current coverage and identify any gaps. Let’s work together to make sure your protection has kept pace with your beautiful, growing family.