What can change your insurance needs

Most people think about insurance at two points: when they first arrange it and when the renewal arrives. What happens in between can easily go unchecked.

The problem is that life rarely stays the same for very long. The mortgage you have today may be very different from the one you took out five years ago. Your income might have increased, you may have started a family, changed jobs or taken on responsibility for someone else.

Insurance needs change alongside those circumstances. Rather than relying on a fixed checklist, it is useful to understand which changes are likely to affect your protection and when it might be time to take another look.

How can your mortgage and property change your insurance needs?

For many homeowners, the mortgage is their largest financial commitment, so it naturally plays an important part in decisions about protection. If your borrowing increases, the financial impact of illness, loss of income or death could increase with it.

Taking out a new mortgage, moving home or remortgaging to a substantially higher amount are all good reasons to revisit the protection you already have. Life insurance or critical illness cover arranged when your mortgage was considerably smaller may no longer provide the level of support you originally intended.

Things can change in the other direction too. If you have paid off a significant proportion of your mortgage, your protection needs may look different from when you first bought your home. That does not necessarily mean reducing your cover. Life insurance, for example, may have a purpose beyond repaying the mortgage, particularly where children or other dependants are involved.

The important thing is to look at the mortgage as part of your wider financial circumstances, rather than assuming that cover arranged several years ago will still be appropriate today.

How can family changes affect your insurance needs?

Having a child is one of the biggest financial changes many people experience. Before children, the financial consequences of being unable to work or dying prematurely can be very different. Once somebody else relies on your income, there is another person's financial security to consider as well.

Children are not the only dependants that can change your needs. A partner reducing their working hours, an elderly parent requiring financial support or another family member becoming reliant on your income can all alter the amount and type of protection that may be appropriate.

Separation and divorce can change things again. Policies arranged around a household with two incomes may need to be reconsidered once finances are separated, while jointly arranged cover may need reviewing too. For life insurance, it is also sensible to check how the policy is set up and, where relevant, whether any beneficiary or trust arrangements continue to reflect your wishes.

How can changes in income and employment affect your insurance?

A meaningful increase in salary can create a gap between your current earnings and the income your existing protection was arranged to cover.

Income protection policies generally provide a proportion of earnings, subject to the terms and limits of the policy. If your salary has increased substantially since you took out the cover, the benefit you would receive may represent a smaller proportion of the income you now rely on.

A fall in income is worth considering too. Rather than assuming the policy should simply be reduced, it is important to understand how the insurer would calculate any benefit at the point of a claim and whether the existing level of cover remains appropriate.

Changing jobs can have an impact that is easy to overlook. Many employers include benefits such as death-in-service cover or income protection as part of an employment package, and the level of support can vary significantly from one employer to another.

Moving to a company with different benefits, or becoming self-employed and losing employer-provided protection altogether, can leave gaps that were not there before.

Can changes to your health and lifestyle affect your insurance?

Your health and lifestyle can influence the cost and availability of protection insurance, particularly when applying for new cover.

Stopping smoking is a good example. If you meet an insurer's definition of a non-smoker after giving up, you may find that different terms are available compared with when you originally took out your policy. Definitions and qualifying periods vary between insurers, so this will depend on the provider and policy.

A deterioration in health creates a different consideration. An existing policy is generally based on the information provided when it was taken out, assuming that information was accurate. If you later cancel that policy and apply for new protection, your health and lifestyle will usually be assessed again.

That could affect the premium you are offered, the terms of the policy or whether particular cover is available at all. It is one of the reasons an existing protection policy should not be cancelled until you understand the implications of replacing it.

How can approaching retirement change your insurance needs?

Protection needs can change considerably as retirement gets closer. A life insurance policy originally arranged to help repay a mortgage may have a different role once most or all of that mortgage has been repaid. Income protection is designed around earned income, so its relevance will also change as you stop working.

At the same time, retirement does not necessarily mean that every protection need disappears. You may still have a partner or other family members who depend on you financially, outstanding debts or other commitments that need to be considered.

The purpose of reviewing your protection at this stage is therefore not simply to identify policies you can remove. It is an opportunity to look at your finances as they will work in retirement and understand whether the cover you have still serves a useful purpose.

Frequently asked questions

If my circumstances change, do I need to tell my insurer?

It depends on the policy and the type of change.

With general insurance, such as home and car insurance, certain changes may need to be reported during the policy term. Protection policies such as life insurance are generally based on the information provided when you apply, although you should check the terms of your particular policy.

If you apply for new or additional protection, you will need to provide accurate and up-to-date information as part of that application.

Does having more than one job affect my insurance needs?

It can, particularly with income protection. How earnings are treated when calculating a benefit will depend on the policy and your employment arrangements.

If your income comes from several jobs, self-employment or a combination of different sources, it is worth checking how your policy would calculate your earnings in the event of a claim.

What happens to my cover if I move abroad?

There is no single answer, as this varies between insurers and policies. Some protection policies may continue if you move overseas, while others have restrictions relating to particular countries, how long you are abroad or whether the move is permanent.

If you are planning to live or work overseas, check your existing policy terms before you move.

Should I review my insurance after a pay rise?

A significant pay rise can be a good reason to review income protection. If your earnings have increased since the policy was arranged, the amount of benefit may no longer reflect the income your household now relies on.

Whether your existing cover can be increased, and on what terms, will depend on the policy. Some policies include options that may allow cover to increase following certain events without full medical underwriting, subject to their conditions. Please check your policy conditions to see if this isa an option or speak to your financial adviser.

Can I be refused insurance if my circumstances have changed?

When you make a new application for protection insurance, the insurer will assess your circumstances at that time. Depending on the type of insurance, this can include your age, health, occupation and lifestyle.

Changes since an earlier application could therefore affect the premium, exclusions or other terms offered, and in some cases the availability of cover. Existing protection should not be cancelled until you understand what replacement cover is available and it is appropriate to do so.

When should you review your insurance needs?

Insurance needs reflect what is happening in your life, and the changes that matter are not always the most obvious ones.

Buying a home or having a child may immediately make you think about protection. A pay rise, new job, separation or taking on more responsibility for a family member might not. Yet each can change your financial commitments and the people who rely on your income.

An annual review is useful, but it should not be the only time you think about your protection. If something significant changes during the year, that can be a good opportunity to check whether the cover you already have still reflects your circumstances.