Are You Covered?
When and How to Refinance Your Life Insurance
By Melinda Copp

As a parent, having a life insurance policy is one of the most important things you can do for your family. However, just like any other financial plan that you put into place, you can't just buy it and forget about it. If you want to get the most coverage for your money, you need to revisit your policy periodically and consider the pros and cons of refinancing. Also, as your life changes, your life insurance needs change too. So you need to make sure the policy you have is enough to cover your needs.

"I had a small policy that would cover my burial expenses with a little left over," says Matt Kraycar, a dad from Hilton Head Island, S.C. "But when my son was born, I refinanced to get more coverage." Kraycar wanted to make sure that his family wouldn't be financially affected by his death, so a refinance made sense.

But refinancing isn't always a smart decision for everyone. If you're thinking about refinancing your life insurance, consider the following tips for knowing when to do it and whether or not it is a good idea for your family.

Why Refinance?
Refinancing your life insurance policy gives you the opportunity to increase, or decrease, your coverage and lower your premium.

"If you've been paying on your current life insurance policy for several years and interest rates drop, you may be able to get more coverage for the same amount or less," says Steven Weisbart, an economist with the Insurance Information Institute. Some companies offer discounts depending on how much coverage you buy.

"For example, if you want $200,000 in coverage it might be just as much to get $250,000," says Weisbart. And in addition to these benefits, refinancing gives you the chance to double check that your policy is right for you and your family.

Assess your Finances and Needs
Taking time each year to consider the ways your life has changed in the past 365 days will show you whether or not you need to consider refinancing.

"People should assess their life insurance needs at least once a year as part of any fiscal fitness examination," says Jack Dolan, the managing director of media relations at the American Council of Life Insurers. "And people should examine their life insurance needs at the time of a major life event, such as the birth of a child, when their taking on new financial responsibilities." If you bought a new house with a larger mortgage or if you had another child during that year, for example, then you might need more life insurance coverage.

"One rule of thumb is that a person should have coverage equaling 10 times their income," says Dolan. Needs also depend on whether or not other people are relying on you for income, if you need life insurance for estate planning purposes, and whether or not you want to leave a legacy at a school or charity. To get a better idea of your life insurance needs, try using the question and answer forms on life insurance company Web sites. These tools calculate your needs based on a number of factors.

However, unless your life has changed and your financial responsibilities have increased, you shouldn't need to refinance each year. Interest rates won't have likely changed enough to warrant it.

Consider What You're Giving Up
Refinancing your life isn't always an easy decision, and staying with your current policy has some benefits. First, when you get a new life insurance policy, you probably need another physical examination and health assessment. And almost every life insurance contract has two clauses that take two years to go into effect.

The first is the suicide clause. This clause means that once you've had your life insurance policy for two years, your company must pay the death benefit even if you commit suicide. And the second clause, the incontestable clause, states that once you've had your policy for two years the insurance company can't contest payment on the basis of any information you gave when you applied. Switching life insurance policies means you have to start the two years over.

"While it's good to take a fresh look at your life insurance contracts, be aware of these two clauses," says Brian Ashe, the immediate past chair of Life and Health Insurance Foundation for Education.

Talk to an Expert
If you have had your current policy for several years or your financial needs have changed, and you think a life insurance refinance is right for you, see what policies are available by talking to an insurance broker that has access to several different plans. A broker can talk to you about your needs, show you what several different companies have to offer, and make recommendations based on what is best for you and your family.

Refinancing your life insurance is a big decision and you don't want to make any mistakes. Start by assessing your needs and researching what's available.

Original article on iparenting.com