When to Update Your Life Insurance Policy Package: Navigating Life Milestones & Stages

Life is dynamic, with many milestones and transitions that shape our existence. Hence, life insurance needs also evolve as individuals experience various life milestones. For example, getting married is a major event that often prompts the need to reassess insurance coverage.

In this context, life insurance may help ensure that a spouse is catered to financially—particularly in situations where the main breadwinner passes away. In fact, as young couples accumulate more assets and take on more significant financial responsibilities, the need for adequate life insurance coverage becomes even more critical.

This article explores life insurance as a safety net to protect against potential financial hardships that a life transition may bring. So, without further do, let’s get started!

What is a life insurance policy?

A life insurance policy is designed to provide a death benefit to beneficiaries in the event of the policyholder passing away. To access this financial protection and security for one’s loved ones, life insurance policies typically require the policyholder to pay premiums regularly— either monthly or annually.

The premium amount is dictated by factors such as the policyholder's age, health, and lifestyle, as well as the type and amount of coverage. In most cases, the death benefit is paid out tax-free to the beneficiaries. Furthermore, it can be flexibly tailored to meet individual needs.

What are the 3 main types of life insurance?

Life insurance policies come in various forms, namely:

• Term Life Insurance: Term life insurance is expressly designed to provide coverage for a defined period, such as 10, 20, or 30 years. It avails a death benefit in case the policyholder passes away during the term. However, it does not build cash value.
  
  As the most affordable life insurance option, it is suitable for individuals who require coverage for a set period to replace their income when they die.

• Whole Life Insurance: Whole life insurance is uniquely designed to provide adequate coverage for the policyholder's entire life. Unlike term life insurance, this accumulates cash value over time and offers a fixed death benefit.
  
  Besides the potential for cash value growth, its premiums and death benefits are usually designed to remain level throughout the policy period.

• Universal Life Insurance: This is an iteration of permanent life insurance that avails coverage for the insured's entire life.
  
  Designed to be more flexible than whole life insurance, it allows policyholders to dynamically adjust their premium payments and death benefits over time whilst accumulating cash value.

 

What is covered in life insurance?

Life insurance mainly covers the following elements:

• Death benefit: Upon the death of the insured, a lump sum, known as the death benefit, is paid to the beneficiaries.

• Cash value accumulation: As earlier mentioned, some life insurance policies, like whole life and universal life insurance, accumulate cash value over time (that’s tax-advantaged). The policyholder can subsequently access this cash value through policy loans or withdrawals.

• Supplemental retirement savings: Some life insurance policies may offer cash value—in addition to death benefits— which can help augment retirement savings.

• Pension maximisation: This feature enables pensioners to choose to accept their full pension and utilise some of their money to buy life insurance to benefit their spouse.

 

Life insurance and life events

As young adults and newly married couples in Malaysia transition through life, their life insurance needs to evolve to reflect the changing dynamics and responsibilities they encounter.

Getting married

When getting married, couples need to plan for the future when starting a family. Consequently, life insurance becomes a critical tool for ensuring their children's financial security and providing for their education needs.

Marriage may dictate the merging of policies, assessing combined life insurance needs and effecting beneficiary updates. As such, new couples may need to explore flexible insurance policies like PRUWith You Plus to address their evolving life insurance needs proactively.

Additionally, for blended families, providing financial security in the event of one parent's death becomes even more significant.

Purchasing a house

Another major life event is becoming a homeowner. When purchasing a home, individuals often take on a substantial mortgage and additional expenses. However, the unforeseen can happen at any time, leaving dependants stuck.

Term life and whole life insurance add-ons like PRUMortgage offer a medium to pay off outstanding mortgage payments in the event of a policyholder’s death.

Welcoming a child

A new addition to your family is a considerable life event that can impact your life insurance needs. As a new parent, safeguarding your child's future becomes a top priority as you’re uncertain about the unexpected!

Mechanisms that enable you to adjust a policy for a new family flexibly are therefore indispensable. For example, PRUMy Child Plus offers a sense of security for your child's financial future in case of any unfortunate events.    

Career advancement

Career changes or job promotions may impact life insurance needs. In fact, higher income levels may dictate increased coverage to ensure that loved ones are financially secure in the event of the policyholder's death.

For context, as income increases, so do expenses. As such, it’s essential to ensure that life insurance coverage is sufficient to cover these expenses. Moreover, suppose the policyholder's new job offers life insurance as part of employee benefits packages. In that case, they may need to review their existing coverage to ensure that it is still sufficient.

Retirement

Transitioning out of work and into retirement marks another milestone that necessitates a review of life insurance coverage. As individuals save for retirement during their career years, they begin the process of turning their savings into accessible income.

Furthermore, life insurance can be converted from term to permanent policies to provide estate benefits. The resultant cash value component can be utilised for estate planning purposes. For example, providing liquidity to cover final expenses, funding trusts for specific purposes and equalising an estate among heirs.

Life insurance for unexpected circumstances

Young adults and the newly married typically have multiple financial obligations. Unfortunately, no one is immune to unforeseen circumstances like loss of a job or even life-altering accidents. 

Life insurance can aid their dependents not to be burdened with financial responsibilities like outstanding debts. Thus, relatively maintaining the dependents’ standard of living.

Moreover, obtaining life insurance at a young age often means lower premiums due to good health and a longer policy term. This can be advantageous as it allows individuals to lock in affordable rates and secure coverage for the long term.

Life insurance can also act as a tool for wealth accumulation and financial planning —with cash value components that can be used for various financial needs. For example, supplementing retirement income.

Benefits of life insurance in financial planning

Life insurance offers several appreciable benefits in financial planning, addressing various aspects of an individual's financial well-being. For example,

Security for loved ones

Life insurance provides a tax-free death benefit to beneficiaries. It will help beneficiaries replace lost income, cover daily expenses, and pay off outstanding debts.

Debt management

Life insurance can be employed to manage and pay off debts like mortgages, personal loans, and credit card balances. Thereby ensuring that these financial obligations don’t become a burden to the policyholder's family in the event of their death.

Legacy planning

Life insurance allows individuals to leave a financial legacy for their loved ones. In practice, one’s death benefit can be utilised to provide an inheritance and support charitable causes. Thus ensuring that the policyholder's legacy lives on.

Wealth accumulation and preservation

Some life insurance policies like PRUWealth Enrich offer a cash value component that accumulates over time. This can be exploited as a tax-advantaged savings vehicle to preserve wealth for future generations.

Estate planning and inheritance

Life insurance plays a crucial role in estate planning as it provides liquidity to cover estate taxes. Thus, ensuring that assets can be passed on to heirs— without the need to sell off valuable property. It also facilitates the equitable distribution of assets among heirs.

Rewards for achieving life milestones

Life insurance policies like PRUMan and PRULady can be deployed to reward and protect individuals as they achieve various life milestones. Such facilities may provide income replacement during core earning years, supplement retirement income— and even fund long-term care costs.

For more information, read ‘Life Insurance as a Financial Planning Tool: Beyond Just a Death Benefit’

Adjusting life insurance coverage

Life is full of many dynamics. Life events such as marriage, the birth of a child, a change in employment, or the purchase of a new home can all impact an individual's life insurance needs.

As such, it’s crucial to review life insurance coverage regularly to meet current and future needs, especially when significant life events occur. Different approaches can be deployed to adjust life insurance coverage dynamically, for example:

The importance of a regular review schedule

It’s imperative to iteratively review life insurance coverage regularly. This is especially necessary when significant life events occur, like marriage, childbirth, or a change in employment.

Regular reviews help ensure that coverage is sufficient for one's current and future needs and that beneficiaries are up to date.

Increasing coverage and adding riders

As financial obligations increase, increasing life insurance coverage is a no-brainer to ensure that your loved ones are financially protected from any uncertainty.

One way to adjust insurance coverage is through riders. These are optional provisions that can be introduced to a policy to provide additional coverage or flexibility— depending on specific needs and circumstances. For example, long-term care or disability income riders.

Reducing coverage

Sometimes, it may be prudent to reduce life insurance coverage. For example, when financial obligations decrease or when the policyholder's dependents become financially independent.

In practice, reducing coverage may help save on premiums and ensure that coverage is appropriate for current needs.

How much life insurance do I need in Malaysia?

Life insurance coverage in Malaysia should be about ten times one’s annual income. For context, if one earns RM50,000 annually, their life insurance coverage should be approximately RM500,000.

For a more accurate calculation, individuals can utilise a Needs Analysis and Financial Budget Calculator. Generally, the type of life insurance policy that is best for an individual depends on their specific needs and financial goals.

FAQ

Does marriage affect my life insurance?

Marriage can considerably impact life insurance needs— prompting a reevaluation of beneficiaries and coverage amounts. For example, newlyweds require adjusted life insurance to ensure financial protection for their spouse in the event of the unexpected.

While the need for life insurance may not be as strong for childless couples, it becomes more mission-critical when children enter the picture. Additionally, some married couples opt for joint life insurance policies. These can be more cost-effective than two separate policies.

Should I increase my life insurance when buying a home?

When purchasing a home, it’s advisable to consider increasing life insurance coverage. This is because a life insurance policy helps ensure that your beneficiaries can pay off outstanding mortgage bills in the event of your death.

Mortgage bills can undeniably pose additional financial and emotional difficulties, especially if you are the primary income earner. So, it’s imperative to review one’s life insurance coverage intermittently to ensure that they align with their changing needs and circumstances, such as buying a home.

How does having a child change my insurance requirements?

Having a child introduces additional financial responsibilities and dependencies. With any added responsibility, it’s advisable to have updated insurance coverage.

For example, parents may consider adding a child rider to their life insurance policy. Furthermore, having a child typically prompts parents to reassess their health insurance coverage to safeguard the family's financial well-being and provide peace of mind for the future.

How do health changes impact my life insurance policy?

If you have made positive lifestyle changes that have appreciably improved your health, you can request to be considered for an upgrade in risk class. This may consequently result in lower premiums.

If your health has deteriorated since you first purchased the policy, your premiums will not increase. However, you may only be able to buy additional coverage at a different rate than before.

What do I do about my life insurance if I become seriously ill?

If you become seriously ill, it may be more difficult to obtain life insurance coverage. Or the premiums may be higher.

If you already have a life insurance policy and become seriously ill, your coverage will not be affected. However, you may be unable to buy additional coverage at the same rate as before.

If you’re unable to obtain life insurance coverage due to your illness, you may want to consider accidental death and dismemberment insurance. This facility pays out only in the event of an accidental death and doesn’t employ your medical history to determine eligibility.

How does becoming a single parent affect my life insurance needs?

Generally speaking, becoming a single parent in Malaysia increases the importance of life insurance. This is because you’re solely responsible for providing financial security for your children.

Adequate life insurance ensures that your children continue to receive essential expenses—even if you were to pass away prematurely. Single parents should aim for a death benefit equal to at least 10–15 times their annual income, with consideration for outstanding debts.

Can I reduce my life insurance coverage?

Yes, one can reduce their life insurance coverage. Requesting lower coverage amounts will typically result in lower premiums.

However, it's imperative to ensure that one still maintains adequate coverage to meet their needs and protect their loved ones financially from any uncertainty.

Conclusion

In conclusion, many young adults may not perceive life insurance as a priority. However, as they progress through major life milestones like marriage, purchasing a home, or starting a family, the need for financial protection becomes increasingly evident.

By proactively addressing their evolving life insurance needs, young adults and newly married couples can lay a solid foundation for their financial future and protect their loved ones from unforeseen circumstances. For more on life insurance, contact the Prudential team today!