5 Reasons to Regularly Review Your Life Insurance Policy

Updated 06/02/2024
5 Reasons to Regularly Review Your Life Insurance Policy

Life insurance cover isn't a ‘set and forget' purchase.

Time to read : 3 Minutes

Life never stands still, does it? And yet it’s surprising how few of us review our life insurance even when our health or wealth changes.

Accidents, illness, and major injuries make a big difference at different times of life. A 20-year-old single tradie’s apprentice who rents may have the option of moving back in with their parents if they’re out of action and can’t earn a wage while they recover. 

That’s not necessarily an option available to a 45-year-old with a mortgage, three kids and ageing parents. In their case an Income Protection or Trauma payout could be a financial lifeline.

Compare Club’s resident life insurance expert Lisa Varker recommends “reviewing your life cover at least annually.” Here’s why…

Why should I review my life insurance annually?

“No insurance cover is truly ‘set and forget,’” says Lisa. “At the very least, you’ll want to avoid overpaying on your premium. Any major life event - and even a few minor ones - can impact your financial situation and any time this happens, it’s wise to re-evaluate your cover.”

I asked Lisa what the most common reasons were to review your life insurance cover, based on her two decades plus of experience in helping Australians protect themselves, their families - and their income:

Here are her expert suggestions.

You bought a new home:

So you have a new mortgage, which is a huge financial responsibility. The big question Lisa suggests asking here is “How could I (and my family) afford these repayments if I can’t work due to a serious illness or injury?” Follow that up with: “Do I have the right insurance to cover us in this situation?” This involves looking at more than just your classic death cover. Living life insurance like Income Protection can cover up to 70% of your salary if you can’t work due to injury or illness, while Trauma cover pays out if you’re diagnosed with a serious illness like cancer. “Once you’ve taken out a new mortgage, reviewing your life cover is one of the first things you should do,” says Lisa. “Your home is likely your most valuable asset, so you’ll want to make sure it’s properly protected.”

More people now depend on your income:

Having a child is an obvious big life change, but as Lisa says, dependents can be both babies and elderly parents. “As a rule of thumb, once somebody becomes financially dependent on you, review your life cover,” says Lisa.

Friends or family have a major health scare or worse

Sadly, there are very few of us who haven’t been touched by big killers like cancer or heart disease. Unpleasant as it is, it’s a reminder of both our own mortality and that major illness can strike any of us at any time. It makes sense to look at your life cover if you discover that a parent has a BRCA gene mutation that can cause breast cancer, for example. But even if you’re feeling fit and healthy, sometimes confronting illness can be the nudge needed to check all’s in order financially.

When you learn of an alarming health diagnosis in your family, it’s worth looking into how life cover can provide for them if/when you can’t.

Changes to your finances:

Sudden changes to your work arrangements - and income - warrant a life cover review so you can make sure you’re not paying top dollar to cover a lifestyle risk that doesn’t exist anymore.. As Lisa says, if you’ve paid down your mortgage by a large amount, do you still need a $2,000,000 life insurance policy?

Your premium seems too high:

This is the number one reason to review your cover annually. Periodic reviews help you avoid getting stuck with a constantly increasing premium that doesn’t offer any new value.

“Being proactive with your policy is one of the best ways to keep your costs down,” says Lisa. “Premiums can creep up year on year, so it never hurts to see if there’s a better value policy on the market.”

Don’t forget your SMSF!

A fairly recent trigger for reviewing life cover has come about since we’ve been allowed to take greater control over our Superannuation. If you - and/or your partner - are trustees of your own Self-Managed Super Fund (SMSF), reviewing your fund members’ (i.e. you and/or your partner's) insurance needs each year is mandatory. 

Like your home, your SMSF is another large asset, and you’re responsible for it as your fund’s trustee. You’ll want to make sure all of your legal and fiduciary obligations are covered off here as well.

The bottom line:

  • Your life insurance policy can be adjusted to accommodate changes in your life circumstances. 

  • Paying down large debts - or taking some on - are good indicators of when it’s time to review your level of life cover.

  • Routine policy reviews help you stay on top of your cover, benefits, and any alterations to your cover.

Your long-term financial goals in life will evolve over time, requiring adjustments to your life insurance policy. Whether planning for retirement, funding a child's education, or paying off a mortgage, reviewing your policy regularly allows you to adjust your cover to support your objectives, and ensure you’re not overpaying for cover you don’t need, or underinsured for likely events.