Statistics released by the Association of British Insurers in 2005 showed that less than 50% of British households have any life insurance at all. Of those who do own a life insurance policy, a similarly staggering number are either under or over insured.

It appears that once reason for this might be that more than a third of those with life insurance do not regularly review their policy to ensure that it continues meets their needs. Just being insured isn’t always enough and it’s important to ensure that your life cover correctly reflects your current lifestyle and family circumstances.

Have your family circumstances changed?

The type and/or amount of cover you need will change over the course of your life as family and lifestyle changes affect your insurance needs. Some of the most common life events that would warrant a review of your life insurance policy are…

• Getting married
• Having children
• Moving home
• Getting divorced
• Retiring

If you get married but plan to wait a few years before starting a family, term life insurance can be a good solution. Term life cover is less expensive than whole life insurance, and it’s even cheaper whilst you are young and healthy. Once children are on the way, it’s a good idea to review your cover with each additional child and to consider increasing your life insurance or perhaps extending the scope of the cover to include more comprehensive options such as critical illness insurance so that your family’s financial needs will be met if you or your partner dies, becomes seriously ill, or is permanently disabled.

Divorce or retirement may reduce or even eliminate your need for life insurance. If you divorce without having had children and have no other dependants, you’ll likely decide you no longer need life insurance at all. If children are involved, you may want to change your beneficiaries to include your children and exclude your former spouse. As you approach retirement, you may decide to include your adult children as beneficiaries, or reduce your total coverage.

Has your lifestyle changed?

The same principle applies when you make lifestyle changes. It’s prudent to review your life insurance if you…

• Start or stop smoking
• Change your level of fitness or health significantly (including blood pressure, weight or cholesterol levels)
• Start or quit a higher-risk job
• Take up or quit a risky hobby

Poor physical health, smoking, a high-risk job or past-time will increase the amount you pay for life insurance but it’s important to declare such changes to your insurer to prevent any claim being invalidated due to non-disclosure. The good news is that if you improve your health or make positive lifestyle changes you can reduce your insurance costs too. For example, if you quit smoking several years ago but you’ve still got the same insurance policy, you’re likely to be paying much more than you need to.

You may also find that a review of your life cover reveals significant savings if you’ve had life insurance for more than five years. Although you are five years older, premium rates on average have reduced over the last five to ten years meaning the same cover could cost less today.

Action steps

1. Digg out your life insurance policy and review the features, terms and conditions of your cover.
2. Decide what cover you need to meet your current financial needs and take advice if you are unsure.
3. If you don’t require advice, go online and compare the cost of your existing cover and any replacement. Consider using a discount life insurance broker.
4. If you do apply for a replacement policy ensure your existing policy stays in force until your new cover is on risk.
5. Don’t forget to cancel your old policy once any new cover has started.