6 Things to Consider During Open Enrollment for Life Insurance

Life is all about change, including changes that bring about new financial challenges. Major events — such as marriage, the birth of a child, buying a home, going through a separation, or experiencing financial hardships — can not only impact your daily life, but also affect your financial legacy. 

When you experience a major life change, it’s a good time to evaluate —  or re-evaluate —  your life insurance needs because that change may impact the amount of coverage you require. Open enrollment for life insurance is a good time to assess and update your life insurance plan. To help you get started, we’ve compiled some tips, answers to FAQs, and other important information, so you can make well-informed decisions.

How does life insurance work?

Life insurance is a contract with an insurance company that helps ensure your beneficiaries will receive a specified amount of money, known as a death benefit, upon your passing. In return, you pay the insurance company a monthly premium. The amount of the premium is typically based on various factors, including your age, health, lifestyle, and the amount of coverage you choose.

Should you get life insurance?

When deciding whether to enroll in life insurance, consider your personal and financial circumstances, along with those of your beneficiaries.

It can be especially useful for easing financial burdens that could arise with your passing. For example, the national median cost for a funeral is $7,848 — and that doesn’t include other end-of-life expenses, such as a cemetery plot, headstone marker, flowers, and more.¹ Life insurance plans can help cover funeral and burial expenses, so your loved ones won’t have to worry about the costs.

Additionally, life insurance can serve as an estate planning tool. Policies can help cover estate taxes, debts, and other expenses associated with settling an estate.

While many companies offer a standard life insurance benefit equal to one to two times your annual salary, financial professionals often recommend investing in additional coverage to help pay off mortgage debt, college tuition for your children, and other significant expenses.²

How to get life insurance during open enrollment: 6 considerations

1. Understand your policy options

There are three primary types of life insurance policies: term life insurance, whole life insurance, and universal life insurance.

• Term life insurance provides beneficiaries with financial protection for a period of time (or “term”) you select. Once the term runs out, you’ll have the option to continue coverage, but at a higher premium.
• Whole life insurance provides life insurance coverage for your entire life. It typically comes with guaranteed level premiums and may also build cash value.
• Universal life insurance provides lifetime coverage, builds cash value, and offers adjustable premiums and death benefits.

When choosing a policy, consider your financial goals. For instance, if you’re looking for affordable premiums and don’t mind having coverage for a limited period, term life insurance may be your best option. But if you're looking to build cash value and invest in a policy that doesn't expire, whole or universal life insurance might be a better fit.

Be sure to carefully read your plan information to help you select the plan that’s right for you.

2. Evaluate your existing coverage

If you already have life insurance through employer-sponsored plans or individual policies, carefully review your plan details. Determine if your current coverage is sufficient or if adjustments are needed to ensure the coverage you need. Factor in any changes in your financial situation, family circumstances, or health status that may warrant updating your life insurance policy.

3. Assess your coverage needs

When determining your coverage needs, take into account your current and future financial obligations. Consider your mortgage payments, outstanding debts, and the financial needs of your dependents when you assess how much life insurance coverage is best for your situation. Also, think about how much income they would need to maintain their lifestyle and cover essential expenses after you're gone.

4. Consider your health and medical history

The underwriting process for life insurance takes certain factors into consideration — including your health, age, and medical history — to determine eligibility and the cost of premiums. As part of the underwriting process, you might be required to complete a Statement of Health (SOH), detailing your medical history and current health status.

5. Factor in costs and budgetary limitations

Assess the affordability of life insurance premiums within your budget to ensure long-term financial sustainability. Consider your other financial priorities, like mortgage or rent payments, utility bills, daily living expenses, and retirement savings. Then, determine the premium amount you could comfortably afford without causing excessive financial strain.

6. Explore additional coverage options

Open enrollment is a good time to consider any additional coverage options that could enhance your policy. For example, some policies offer an accelerated death benefit (ADB), which allows you to receive a portion of your life insurance to use before you die. This could be helpful if you were diagnosed with a terminal illness and need the money to help pay for medical expenses. Policies may also offer rider benefits for a critical illness, disability, or long-term care.

When is open enrollment for life insurance?

If you’re applying for life insurance on your own, you can typically sign up anytime throughout the year. But if you’re enrolling through your employer, open enrollment is typically in October and November. Check with your company’s human resources (HR) team to find out open enrollment dates for your company.

If you experience a major life change – or qualified life event (QLE) – outside of the open enrollment period, reach out to HR to see if your circumstances make you eligible for a special enrollment period (SEP).

Life insurance can help protect your loved ones with added financial security when they need it most. Assessing your current circumstances and thinking about your future needs and financial goals will help you make well-informed decisions when open enrollment comes around.