Unemployment & Life Insurance
This is a situation that has arisen more frequently since the onset of the COVID-19 pandemic.
Many people have lost their jobs and businesses due to the changes that have needed to be enforced regarding the way that we do business and live our everyday lives. This will often lead to someone asking us the question of if they need to apply for, or if they need to maintain their life insurance policy even though they aren’t working.
In previous discussions we have looked at whether or not someone that doesn’t have any income needs life insurance or not. When we used the example of a stay at home parent we figured out that there is still a significant need for life insurance. Under most circumstances someone who isn’t working has the same (if not more) reasons to have life insurance coverage.
First off, remember that the reasons that you purchased life insurance rarely change in the event that you lose your job. Any of the debt’s that you were looking to cover off against will continue to be in place. If it was important to you to ensure that your mortgage was paid off before you lost your job, it is probably still important to you now. The same is true of student debt, lines of credit or any other debt that you had.
If it was in your original calculation of how much coverage you needed when you first bought life insurance, it is more than likely still a need regardless of your current employment.
Secondly, when you looked into how much life insurance you needed, if done properly it should have included supplemental income for your family in the event of your passing. Again, the fact that you are not working doesn’t mean that the need for this income goes away. In the event that something unexpected happens to you the supplemental income for your beneficiaries will play the same role for your family, regardless of if you were working at the time of death or not. In reality, your family may require your life insurance coverage even more if you are not producing an income right now.
While you may need to adjust to living with less income while you look to return to the workplace, you still need the protection that your life insurance plan was originally designed for.
Acknowledging that the need for life insurance doesn’t change even if your job is one thing. Often the reason that the question about maintaining coverage is brought up is the cost associated with the premium. If someone is not working, they often look at life insurance as a ‘nice thing to have’ rather than a ‘need to have’. Consider that you will begin working again and if you have cancelled a life insurance policy to avoid the costs associated with it, when you go to purchase it again you will be older, have to pay higher premiums and also be insurable. If your health changes in this period of time for the worse, it could have an impact on your rates or even leave you possibly getting declined.
Before you do anything drastic like cancelling a life insurance policy, make sure that you don’t have other options that could change the style of coverage and reduce your monthly costs. For example, most term life insurance and permanent life insurance policies will provide some flexibility to make changes to the policy which will reduce your premiums. This will ensure that you can keep coverage in place during these hard times.
Losing your job is a stressful event. One thing that is important to remember when something stressful happens is that you need to avoid snap decisions that reduce stress immediately, but really only defer it down the road.
Give yourself time to truly evaluate the situation… If your needs have changed, rework your life insurance. If they haven’t, sleep well with the fact that your coverage is still in place while it is needed.