Increasing life insurance after a life event: check the existing policy first

A new child, larger mortgage or changed household income can increase the amount of protection a family wants. Some existing policies contain an option to increase cover after specified events without further medical evidence, subject to conditions.

Before replacing a policy or assuming a new application is required, find out whether that option exists and whether its deadline is approaching.

Locate the option in your own documents

It may be described as guaranteed insurability, a life-event option or an option to increase cover. The policy schedule should confirm whether it applies to you.

For one insurer example, Legal & General's life policy terms describe specified events, limits and a notification deadline. Existing customers must use the version attached to their own policy.

The word “guaranteed” does not mean unlimited extra cover, an unchanged premium or automatic eligibility after every change in circumstances.

Check the event and the clock

Record the date of the event and ask what evidence is required. A policy might distinguish a mortgage increase for a particular purpose from other borrowing, or an income increase following specified employment changes from an ordinary pay adjustment.

Do not rely on a general list of common events. Ask the insurer to identify the clause that applies and the last date for a valid request. Retain the acknowledgement if you submit information close to a deadline.

If the event does not qualify, a separately underwritten application may still be possible, but its terms and acceptance need to be assessed independently.

Calculate the need before the permitted maximum

The maximum increase allowed by the contract is not necessarily the amount the household needs. Update debts, dependants' costs, existing resources and the period for which support is required.

Suppose a fictional household's assessed life-cover need rises from £250,000 to £330,000. The additional need is £80,000. If an existing policy option permits only £60,000 in the relevant circumstances, there remains a £20,000 difference to consider.

Those figures are illustrative and do not describe a real insurer's limit. They show why the needs calculation and the contractual option should be recorded separately.

Ask how the extra cover will be arranged

The insurer may amend the existing contract or issue an additional policy. Confirm the new premium, end date, exclusions and whether further increase options apply to the added cover.

If the original policy ends in ten years but the new family need lasts 18 years, simply increasing the amount may leave a timing gap. Compare both the amount and duration of support.

Also check whether any trust arrangement or ownership documentation must be updated to include an additional policy. A new policy number should not disappear from the family's claim records.

Compare affordability over time

An extra premium needs to fit the household budget for the expected term. If an illustrative increase costs £12 a month, that is £144 a year and £1,440 over ten years if unchanged.

The arithmetic does not establish whether the price is competitive or the cover suitable. Compare accepted terms, not just initial quotes, and identify any future premium increases.

If the full increase is unaffordable, ask the adviser to explain the trade-offs between amount, duration and other protection needs. Avoid silently assuming that a smaller premium buys the same outcome.

Do not cancel useful cover before replacement is secure

An existing policy may have terms that would be difficult to obtain again after changes in health or circumstances. Establish what would be lost before cancelling it.

Where replacement is appropriate, coordinate start dates, acceptance and any outstanding requirements. Keep written confirmation rather than relying on the fact that an application has been submitted.

Review protection after significant changes, but do not treat every life event as a reason to replace a contract. Sometimes an existing option addresses the need; sometimes a different arrangement deserves consideration. The documents and household position should lead the decision.

See preparing for a financial adviser meeting, the financial fact find and how advisers are paid.