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How to re-evaluate your life insurance needs

Contrary to popular belief, life insurance is not a one-and-done deal. Coverage frequently has to be modified or updated, especially after major life events.

Buying life insurance gives you聽the security of knowing your family could carry on financially if you died. But be careful not to let that peace of mind lull you into a sense of complacency forever. As your financial life changes, so will your insurance needs.

After you buy a life insurance policy, it鈥檚 a good idea to re-evaluate your coverage every few years, especially after major life changes, such as marriage, divorce or having children.

Here are some of the changes you could make after reviewing your need for life insurance.聽

Buy more coverage

Maybe you had more children, adding many years of child-care and education expenses that you want covered by life insurance. Or maybe you couldn鈥檛 initially afford all the coverage you needed when you bought the policy, and now you can.聽

The most obvious way to secure more life insurance is to buy another policy that adds to your existing coverage. If your needs are specific 鈥斅爏uch as covering the years through children鈥檚 college or the length of a mortgage 鈥斅爐erm life is the right type of life insurance.聽

If your policy includes a guaranteed insurability rider, you might be able to add more coverage without going through a new application process. Typically the feature lets you add coverage only at certain times or after major life events, such as having a child. The additional price will be based on the amount of coverage, your health when you bought the policy and your current age.

Change your beneficiary

Review beneficiary designations periodically on聽聽and other financial accounts, especially after divorce or remarriage. As the policy owner, you have the right to change the life insurance beneficiary at any time, and the process is as simple as filling out a short form. Contact the life insurance company for instructions.

As you contemplate this, avoid common mistakes such as naming a minor as beneficiary or naming your estate as beneficiary. Name a trusted adult instead. Here鈥檚 why: The life insurance company can鈥檛 give the insurance payout to a minor until a guardian is appointed, which can eat up time and money in attorney fees and court costs. Naming your estate is a bad idea because the policy proceeds then have to go through the legal probate process, which can take months or even years. 聽

Convert term life to permanent life

Most term life policies are聽, meaning you can switch the policy over to permanent life such as whole life or universal life. The type of permanent life policy available will depend on the insurance company that issued the term life insurance.

You don鈥檛 have to convert the entire policy. You could convert just a portion, such as $100,000 of a $1 million term life policy.

Check your policy for details on when you can convert. The deadline for conversion may occur before the policy expires.

Cash out a permanent life policy

If you own permanent life insurance and no longer need the policy, you can surrender it for the cash value. Of course, that will mean your beneficiary won鈥檛 be able to make a聽聽when you die.

Cashing out is a consideration only if:

• You have a permanent life insurance policy. Term life has no cash value.
• You don鈥檛 need life insurance coverage.
• You鈥檝e held the policy long enough that the cash value has had a chance to build.
• You鈥檙e past the point when you鈥檇 owe the insurance company a surrender fee for cashing out. Surrender fees are charged if you cash out in the policy鈥檚 earlier years.

Sell your life insurance policy

Another option if you don鈥檛 want your permanent life insurance anymore is to sell it. In a聽, a third party buys your policy at a price that鈥檚 more than the cash value and less than the death benefit. The buyer then makes the premium payments and gets the death benefit when you die.聽

You can sell a policy through a life settlement broker or through a life settlement company that buys policies. Before making any moves, talk to a financial advisor. It鈥檚 often hard to tell whether聽you鈥檙e getting a good deal, and the transaction fees can cost up to 30% of the settlement, according to the Financial Industry Regulatory Authority.

Looking ahead

Whether you recently聽bought a policy or you purchased one years ago, remember to review your coverage periodically. If you need more term life insurance, NerdWallet鈥檚聽聽can help you figure out the right amount and check prices.

This article first appeared at .