Risk cover is designed to protect your financial plan from the unexpected, but it is not something you buy once and file away forever. Your life, disability and severe illness (dread disease) need to evolve as your circumstances change. Debt rises and falls, careers pivot, children arrive and become financially independent, businesses are started and sold, and retirement draws nearer. Meanwhile, insurers refine products, adjust definitions and release new features. All of this means your cover can drift out of alignment with your objectives if you don’t review it regularly.
In this article, we unpack how needs change over time, the dangers of neglecting reviews, what to evaluate when you revisit your cover, the triggers that should prompt a review, and the pitfalls of policies underwritten only at claim stage.
How needs change across a lifetime
Early career: In your 20s and early 30s, your greatest asset is your future income. In this phase of life, income protection (temporary and permanent disability cover) is usually the priority, backed by sufficient life cover to settle debt and provide a financial runway for a spouse or dependants if something happens to you. Further, severe illness cover can help protect savings from being raided to fund treatment and recovery time.
Growing family and debt: As you take on a home loan, car finance and childcare costs, your dependence on uninterrupted income increases. Life cover often needs to increase to settle debt and provide enough capital to fund living costs, education and childcare. Disability and income protection should be checked for adequate replacement ratios, waiting periods and ‘own-occupation’ definitions. Severe illness benefits may need to be increased as financial responsibilities grow.
Mid- to late career: With higher earnings and possibly business interests or suretyships, the focus in this phase of life tends to shift toward preserving your lifestyle, protecting partners and covering contingent liabilities. Policy structures may need to transition from purely term cover to more efficient mixes, and you may add key person or buy-and-sell cover if you’re a business owner.
Pre-retirement and retirement: As debts reduce and children become independent, the need for large amounts of life cover often falls, although estate liquidity, capital gains tax and the protection of a surviving spouse may still justify the need for cover. Importantly, note that income protection is typically set to cease at retirement, so ensure the benefit term matches your intended retirement age. Severe illness remains relevant because a major diagnosis can still derail retirement plans through out-of-pocket medical costs and lifestyle adjustments.
The dangers of not reviewing your risk cover
Below we have listed some potential dangers that may arise should you neglect to review your risk cover:
- Under-insurance: Inflation, lifestyle creep and additional dependants can leave sums assured too small, resulting in shortfalls at claim stage.
- Over-insurance and wasted premiums: Continuing to pay for cover you no longer need—such as large life cover once your bond is repaid and children are independent—erodes cash flow that could be directed to investments.
- Outdated definitions: Disability and severe illness products evolve. Older contracts may have narrower definitions, lower partial benefits or weaker conversion options, reducing the likelihood or amount of a claim payment.
- Mismatched structures: Premium patterns (age-rated/stepped versus level), benefit terms and escalation rates can become inappropriate, making cover either unaffordable or inefficient.
- Group cover gaps: Relying solely on employer benefits can be risky. Changing jobs, sabbaticals or retrenchment can leave you uninsured if you haven’t arranged continuation options in time.
- Beneficiary and ownership errors: Life changes without updating policy ownership, premium payer, and beneficiary nominations can cause delays, estate complications or unintended outcomes.
- Exclusions that bite: New hobbies, overseas travel or health changes may trigger exclusions or require disclosure at alteration; if not surfaced and managed, they can jeopardise future claims.
What to evaluate in a proper review
Below are some vital aspects that should be considered in the review process:
- Adequacy of cover: Re-model your liabilities (bond, vehicle finance, business loans, sureties), living expenses, children’s education needs and spouse’s retirement security, and ensure that your life cover would be sufficient to settle debt and provide appropriate income for dependants for a realistic period.
- Policy definitions and benefits:
Disability: Confirm whether definitions are ‘own-occupation’ (preferable for professionals) or broader ‘any-occupation’. Check waiting periods, permanent versus temporary disability rules, partial impairment benefits and the proportion of income covered.
Severe illness: Review the list of conditions, severity-based payouts, multiple-event claims, cancer stage definitions and child cover benefits if applicable.
- Premium structure and sustainability: Assess whether premiums are age-rated or level, whether there are premium guarantees, and how escalations compare with income growth and inflation. In this regard, affordability over the medium term is critical to avoid lapse risk.
- Benefit terms and expiry ages: Income protection should generally align with your intended retirement age, so ensure that your life and disability benefits don’t expire earlier than your risk needs.
- Exclusions and loadings: Reassess whether past exclusions or loadings remain appropriate, and whether a change in health, occupation or lifestyle makes it sensible to seek improved terms.
- Integration with your estate plan: Confirm ownership (individual, trust or company), beneficiary nominations, cession to a bank if applicable, and whether the policy is intended to provide estate liquidity or contractual funding (e.g., buy-and-sell).
- Product innovation and market benchmarking: Compare your existing cover with current market offerings—definitions, ancillary benefits (rehabilitation, nursing, premium waivers), and continuation options—to ensure you’re not paying more for less.
Specific dangers of neglecting life and disability cover
Neglecting life and disability cover can expose one to risks that can have devastating long-term consequences. For instance, if life cover sums assured are set too low, your family may be forced to sell assets, disrupt children’s schooling, or downgrade housing to cope financially. Further, if ownership, cessions, and beneficiary nominations are not properly structured, payouts can be delayed or misdirected, leaving your estate without sufficient liquidity and placing unnecessary pressure on your executor and heirs.
The situation is no less precarious when it comes to disability and income protection. For many professionals, the most financially damaging risk is a long-term disability that halts earnings. If the benefit term does not extend to the intended retirement age, if the waiting period is excessive, or if the policy lacks ‘own-occupation’ protection, income may fall short at precisely the time when stability is most crucial.
Severe illness cover is equally important, as the financial impact of a cancer diagnosis or cardiac event can rapidly deplete savings, derail investment strategies, and force premature or sub-optimal withdrawals from retirement funds, compromising both immediate security and long-term plans.
Our advice is to adopt an annual review as a minimum, and an ad-hoc review whenever a trigger event occurs, and be sure to update your adviser proactively when your circumstances change. If new cover is needed, prioritise full underwriting and clarity on definitions. Finally, when cover is no longer required, rationalise it thoughtfully rather than defaulting to cancelling the policy, as there may be better ways to restructure, reduce, or convert benefits to retain valuable definitions.
Have a great day!
Sue
