Got a Big Raise? You May Want to Make This Important Life Insurance Move

It could help ensure you truly have the coverage you need.

Getting life insurance is one of the most important financial moves you can make. Putting a policy in place can help protect your loved ones financially in the event of your passing. And it can also give you peace of mind. 

Meanwhile, the amount of life insurance you buy will often hinge on the amount of money you earn. Why is this? 

Many financial experts will tell you to calculate your life insurance needs as a multiple of your salary. So if your salary goes up, there's one important life insurance move you ought to make. 

A big raise should trigger a change 

It's estimated that the average U.S worker. got a 4.6% bump in salary for 2023. But what if your wages increased a lot more than that?

Maybe, after years of hard work, you were able to qualify for a promotion. Or maybe you moved from one company to another, and in the process managed to boost your pay by 15% or 20%. That's a scenario that might warrant a closer look at your life insurance coverage.

See, when people's earnings increase a lot, their lifestyles tend to follow suit. Think about it. If your paycheck goes up substantially you might upgrade your lifestyle in different ways. You might decide to treat yourself to a nicer vehicle, enroll your kids in more programs, or even take on a more expensive mortgage. And so it's a good idea to update your life insurance benefit to account for your higher earnings and higher spending.

Now, you may be thinking, "Well, if I pass away, my family could always sell my car and cut back on spending." But would you really want them to have to sell your home because they can't afford to keep up with it? Probably not. And that's why increasing your life insurance benefit is a smart bet.

Often, you can tack on added coverage to an existing life insurance policy. But that's not always the case, so you may need to go out and buy another policy to layer on top of an existing one.

But let's say your goal is to have 10 times your salary as a life insurance payout. If you were making $60,000 a year and therefore have $600,000 worth of coverage, but your salary has risen to $75,000, that suddenly means your life insurance benefit might be $150,000 short. And that's something you may want to remedy sooner rather than later.

Make sure you have the coverage you need

Putting life insurance in place means you're trying to do your part to protect your loved ones in a worst-case scenario. So you might as well go the extra mile and make sure your coverage is truly sufficient. 

You don't necessarily have to increase your life insurance coverage every time your salary goes up modestly. But if you're talking about a sizable raise, and changes to your expenses that reflect that raise, then it's at least worth thinking about upping your life insurance benefit.