On this page
- Can you Actually Change a Life Insurance Policy in Canada?
- Reasons to Update Your Life Insurance Policy
- What Parts of a Life Insurance Policy Can You Change?
- Can You Switch Life Insurance Providers?
- Step-by-step How to Update a Life Insurance Policy
- Revocable vs Irrevocable Beneficiaries Explained
- What Happens If You Don’t Update Your Policy?
- When Should you Review your Life Insurance Policy?
- Do Policy Changes Affect Taxes or Pay-outs in Canada?
- Final Thoughts on Keeping your Policy Up to Date
Key Points About How to Update a Life Insurance Policy
✅ Life insurance policies should be reviewed and updated regularly to reflect major life events, financial changes, and evolving family needs.
👨👩👧👦 Marriage, divorce, having children, buying a home, or significant income changes are common reasons to update your life insurance coverage and beneficiaries.
📋 Most insurers allow changes to beneficiaries, coverage amounts, riders, and certain policy features, although some updates may require medical underwriting.
⚖️ Understanding the difference between revocable and irrevocable beneficiaries is important, as it affects how easily you can make future policy changes.
💰 Keeping your policy up to date helps ensure the right people receive the intended benefits and that your coverage continues to provide adequate financial protection.
Did you know that approximately nine out of every ten life insurance policy holder do not review and update their life insurance regularly? This fact is even more alarming when you realize the monetary value of the assets involved in life insurance!
You’d be quite wrong to think that your life insurance policy is something you set once and never need to revisit, like a one-time task. Since life changes are unavoidable, the specifics of your life insurance policy should always be adjusted accordingly.
Basically, a policy that no longer reflects your life and current status may fail to offer adequate coverage for your assets and their future beneficiaries. Before going any further, let’s answer some important questions you might have about life insurance policies.
Can you Actually Change a Life Insurance Policy in Canada?
Contrary to some rumours that you might’ve heard, it’s very possible to change your life insurance policy during updates. However, the type of change depends on your insurer and policy terms.
The truth is that most life insurance policies are designed to allow some level of flexibility. Literally no-one wants to sign an insurance deal that feels like an unchanging eternal oath!
Insurance companies understand that your needs will evolve, so they provide options to update certain parts of your policy. However, it’s important you know that not all changes are handled the same way.
Some updates are simple and can be completed quickly. Others may require approval, additional documentation, or even a health assessment!
For example, updating your beneficiary is usually straightforward. Increasing your coverage, on the other hand, often involves medical underwriting. The type of policy you have also matters. Term life insurance, permanent insurance, and group policies each come with different rules.
When learning how to make changes to a life insurance policy, it is important you understand the rules and ins’ and outs of your policy. You should also start by reviewing your policy documents. This will help you understand what changes are allowed and the required steps to take.
Remember, if anything is unclear, contacting your insurer or a professional is always your safest option.
Reasons to Update Your Life Insurance Policy
The general advice is always that you should update your policy whenever your personal or financial situation changes. But wait, what actually classifies as personal changes?, or financial situation changes?
Let’s discuss them!
One of the most common reasons people learn how to update a life insurance policy is when they expect a change in their family structure. Take marriage and divorce for instance, marriage often means adding your spouse as a beneficiary. It may also require increasing your coverage to reflect shared responsibilities.
On the flip side, a divorce will also warrant an update of your life insurance policy since you might need to exclude your former spouse from your list of beneficiaries.
Another good example is childbirth and child rearing. Basically, having children is a good enough reason to review and update your life insurance policy.
As earlier stated, financial changes also play a role in insurance updates.
For example, receiving a promotion and higher income often comes with greater responsibilities which may require more coverage. Similarly, paying off some debts will allow you to reduce the scope of your life insurance coverage.
Buying a home is also another key moment that classifies as “financial change”. Your mortgage is largely a long-term commitment, and your life insurance should be able to cover it if needed.
What Parts of a Life Insurance Policy Can You Change?
It’s very common to find policyholders who believe that there’s no going back once they’ve signed some insurance documents. This belief is only a half-truth because with life insurance, several parts of your policy can be adjusted over time!
Considering most life insurance policy holders, the most common and expected change involves their beneficiaries and respective pay-out percentages. This is because the entire purpose of life insurance is only relevant when your assets are received by the person or individuals you’ve named. Why keep a life insurance policy with beneficiaries that you don’t want?
Coverage amounts and riders are other areas that most people change. This primarily because life changes and responsibility shifts are sure to occur, and naturally, they’d want an updated policy that doesn’t provide insufficient or too much coverage.
Although it’s not as common as beneficiary or coverage updates, some policies also allow conversion. For example, your insurer may allow you to convert a term policy into a permanent one without undergoing a medical exam.
In certain situations, policy ownership can also be transferred. However, it’s mostly done for estate planning or business purposes.
How to Change your Life Insurance Beneficiary
- The process usually begins by contacting your insurance provider. They will provide the necessary forms for you to fill or direct you to an online system they’ve put in place.
- Once you receive the form, fill it out carefully. Include your full legal name and no short names, or nicknames. Basically, be sure your details are accurate as even the smallest error can delay the pay-out process later.
- After completing the form, you’re to submit it strictly according to your insurer’s instructions. Also note that some companies accept digital submissions, while others may require a signed document.
- Finally, standby for confirmation. Do not assume the change is complete until you receive written confirmation from your insurer.
How to Increase or Decrease your Coverage
With life insurance, you can always adjust your coverage. Decreasing it is often faster, but increasing it? That’s where things get tricky!
You’ll usually need to meet certain requirements like a medical approval, physical exam, a medical questionnaire, or a review of your medical history. Summarily, your insurer will attempt to assess the level of risk you’re often exposed to.
Note that the outcome of this assessment can affect your premiums, with higher coverage usually translating to higher costs.
Decreasing your coverage is generally more straightforward since it does not usually require medical checks. However, reducing your coverage will lower the amount your beneficiaries receive.
In this case, you’ll need to consider whether the reduced coverage will still meet your family’s needs. Either way, your new coverage should match your current financial responsibilities.
Can You Switch Life Insurance Providers?
It’s very possible to switch your life insurance provider. However, to avoid leaving your assets unprotected, you should secure a new policy before cancelling your current one.
Sometimes there are complications when making that switch. For instance, your new policy may require medical underwriting, and if your health has changed, your premiums could be higher. You may also lose benefits that were included in your original policy!
Understanding how to update a life insurance policy includes knowing when it makes sense to switch providers and when it is better to stick with your current plan.
Step-by-step How to Update a Life Insurance Policy
Updating a life insurance policy isn’t complicated. The process can be broken down into a few clear steps.
- ALWAYS start by reviewing your current policy. Take note of your beneficiaries, coverage amount, and additional features if there are any.
- Based on your analysis of your current policy and coverage needs, you should be able to conclude on the necessary changes to make. This could include adding a new beneficiary, increasing or decreasing your coverage, or adjusting your policy type.
- After that, contact your insurer to make enquiries about the requirements for each change. Note that different updates may require different documents or approvals.
- Once you’ve been instructed by your insurer, complete the required forms and acquire all necessary documentation. There’s no need to rush, take enough time to ensure accuracy.
- Finally, submit your documents to your insurer and wait for a confirmation of the update. Remember to keep copies of everything for your records.
Revocable vs Irrevocable Beneficiaries Explained
When updating a life insurance policy, sometimes you might need to switch the beneficiary type or designations that you previously used. Hence, it’s very important you understand these two main beneficiary designations and how they function.
Simply put, revocable beneficiaries can be changed at almost any time without any notification to named beneficiaries. Basically, it’s a very flexible beneficiary designation.
On the other hand, irrevocable beneficiary designations are more restrictive. This is because you must always obtain the consent of the named beneficiary before making any changes. If your policy includes an irrevocable beneficiary, updating it may take more time and effort than you’d expect.
What Happens If You Don’t Update Your Policy?
Keeping an outdated life insurance policy is never a good idea since it can create serious issues for your family sometime in the future.
If you don’t update your policy, it may end up providing insufficient or excess coverage. Sometimes it’s even worse since your life insurance pay-out may end up with the wrong person!
For example, imagine a former spouse still being listed as a beneficiary without any updates. No one wants that right?
These problems can create confusion and stress for your loved ones. Keeping your policy updated ensures that it continues to serve its intended purpose.
When Should you Review your Life Insurance Policy?
It’s always good practice to review your policy “at least” once a year and after major life events. Even if nothing major happens, an annual review is still a good practice.
However, it’s even better when you can conduct these reviews more frequently, especially since regular reviews help keep your policy aligned with your life. Events like marriage, divorce, child birth, and significant financial changes are all valid reasons to conduct a review of your life insurance.
Do Policy Changes Affect Taxes or Pay-outs in Canada?
Generally, life insurance benefits paid to beneficiaries are not taxed, at least not in Canada. This is one of the main perks of having life insurance. However, some changes to your policy can affect how it is treated with respect to taxation.
For instance, transferring ownership of a policy may trigger tax consequences. You’ll find that this is especially relevant in estate planning.
If your policy has an investment component, changes to that portion of the policy may also have tax implications. This is more common with permanent life insurance policies.
Due to these factors, it is important you think carefully before making major changes to your policy. If you’re unsure about a step you’re about to take, consulting a financial advisor would be your best bet.
Final Thoughts on Keeping your Policy Up to Date
One prerequisite for owning a life insurance policy is that you should be willing and able to update it regularly for as long as the policy remains active. Basically, it’s a continuous process and not a one-time task!
Each update ensures that your coverage continues to serve its purpose. Whether it is adding a new beneficiary, adjusting your coverage, or improving your policy with riders, every change matters.
Understanding how to update a life insurance policy gives you control over your financial protection. It also allows you to make informed decisions and avoid unexpected outcomes.
By reviewing your policy regularly and making necessary adjustments, you can be sure that your loved ones are always financially protected.
FAQs about How to Update a Life Insurance Policy
Most policies allow changes at any time. Although you might need to provide some documentation.
That's simple. You need to contact your insurer, complete a beneficiary change form, and wait for confirmation.
Depending on you insurer and current policy, you may need medical approval if you are increasing your coverage or making significant changes.
Yes, it's possible. You only need to ensure your new policy is active before cancelling your current one.
Your payout will likely go to the wrong person.