5 steps to make sure you have enough life insurance coverage in 2021

According to a study from Global Atlantic Financial Group, 43% of Americans don’t have life insurance. The same study found that two-thirds of Americans are thinking about their own mortality due to the coronavirus pandemic, and only 33% believe that they have enough life insurance or other assets to protect their family in the event of their own death.

“The pandemic is a stark reminder to have protection should something occur,” says Maria Roloff, a wealth advisor at Northwestern Mutual Insurance. Roloff said that applications are on the rise due to pandemic and noted that “COVID-19 has not been an exclusion for coverage to those with existing life insurance coverage, but it could impact new applications depending on the life insurance provider.” 

Here’s a five-step checklist to complete at the beginning of 2021 to make sure you’re getting the most out of your life insurance coverage.

1. Review your current life insurance

Roloff suggests evaluating your personal life insurance policies to see if you should make any changes.

If you have insurance, maintain it because it might be harder to get due to the coronavirus pandemic. “Some insurers are asking whether an applicant tested positive or was exposed to someone with COVID-19 within 30 days. If so, your application may be postponed, especially if pre-existing conditions put you at greater risk for COVID-19,” said Roloff.

Roloff said that Northwestern Mutual offers conditional coverage while an application is in the underwriting stage. Other insurance carriers may offer conditional coverage as well, though some have suspended it due to the pandemic.

2. Decide if you need more coverage

Half of Americans who have life insurance are underinsured, according to Insure. Being underinsured is when your death benefit does not cover expenses like mortgage, college, food, debts, and clothing for your dependents in the event of your death.

If you’ve evaluated your current life insurance as well as the expenses of your dependents and decided you need to increase your death benefit, note that you will have to go through the insurance underwriting process, which includes a health questionnaire. Roloff recommends that you do not cancel your current coverage until you know you’re approved for the higher death benefit.

If you have employer-provided group life insurance through your job, note that those policies will end if you retire, are laid off, or terminated. That is why it is best to have a personal life insurance policy as well. Roloff suggests getting 6-10 times your annual income or using online life insurance calculators as a starting point. 

However, she notes that an online calculator doesn’t replace the comprehensive advice you would receive from a financial advisor who would look at your financial situation, goals, and estate planning.

3. Consider a combination of term and permanent life insurance

When you’re looking for life insurance, Roloff recommends asking yourself what your goal is. Do you want to protect from untimely death, leave financial resources for your family, or both?

Term life insurance is the most reasonable cost-wise, but permanent life insurance offers more flexibility for changes due to life events like birth or marriage. 

“If it’s important for you to have coverage that never expires, then permanent life insurance is best as it doesn’t expire and has an accumulated cash value that you can take a loan on or use as collateral,” Roloff said. She noted that permanent life insurance policies have riders for long-term care insurance along with a death benefit. There are different add-on riders for permanent insurance that are not available for term life insurance policies. 

However, Roloff recommends “clients blend insurance — some permanent and term life— to fit in budget allowing for maximum coverage.” The benefit of blending insurance is that even if you can’t afford $500,000 in permanent life insurance, having half in term life insurance and the remaining half in permanent life insurance at least gives you the ability to have some coverage that never expires and has a cash value component. 

You would need to talk to your insurance agent or financial planner about what combination and blend works for your budget and financial goals.

4. Consider converting your term life policy to whole life

Term life insurance lasts for a specified period of time —five, 10, 20, or 30 years. Once your term expires, you have to reapply for insurance again. If you bought a 20-year term life policy at 25, when you are 45 years old your policy will end and you will need to get coverage. Even if you are in good health, life insurance becomes more expensive as you age.

If you’re older, you may not be able to get a 20- or 30-year term. In your 40s and 50s, your life insurance needs change. If the kids are out of college, you need a life insurance policy that helps you prepare for retirement and includes some type of coverage for long-term care. A term life policy does not offer that, but a permanent life insurance policy does — and it never expires.

Not all term life insurance policies can convert to permanent life insurance and for those that can, there is a window of time to exercise that conversion. Talk to your life insurance agent about whether you can convert your term life policy. 

Converting term life insurance to permanent takes a portion of term insurance or all and changes the coverage to permanent. Roloff noted that you do not need to submit to additional medical underwriting because your policy would convert at the health rating under the original term policy. Your health insurability is locked from the time your term life insurance became effective.

When you make the conversion from term life to permanent, understand that there are different types of permanent life insurance policies, such as whole, universal, and variable life. It is important to talk to your insurance agent or financial planner about the differences between the various permanent life insurance policies to understand what works best for your situation.

5. Talk to a financial planner

If 2020 has stressed your finances, start 2021 by talking to a financial planner to see what you can do to rebuild your finances and develop a plan for a more stable financial future.

A financial planner is not just for the wealthy. The job of a financial planner is to evaluate your current financial situation and help you develop a plan to achieve your financial goals. Everyone’s circumstances varies and that is the benefit of a good planner — meeting you at your level and planning according to your budget and needs. 

Life insurance, particularly permanent life insurance, can be a tool to build wealth. Start with your bank to see if it offers financial counseling. Contact your life insurance agent to see if they have financial planning that goes beyond term life insurance.

The first step is to find someone you trust with knowledge of the different types of life insurance products along with a background in estate planning. Business Insider recommends following these steps to find a financial planner. Also, see our picks for best term life insurance companies.

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