Considering replacing your life insurance policy? There are many questions you should ask yourself before making this decision, such as: Are you looking for lower life insurance premiums? Does your policy still offer enough protection for your family? Have your needs really changed? Even if you’re happy with your life insurance policy, it’s important to regularly review your coverage in relation to your current and future needs. After all, the role of life insurance may change over time, and your policy may remain a valuable asset for years to come.
After reviewing your needs on your own or with a Financial Professional, you may determine that you need different coverage — maybe more, maybe less. But if you’re thinking about replacing your policy, think twice and take the following into consideration.
Take Another Look at Your Current Policy
There are many reasons people consider canceling their life insurance, but there are often just as many reasons to keep it. So before you start exploring a new policy, it’s a good idea to learn how your current policy works and what options may be available. For example:
- If you can no longer afford the premiums, your policy may have options to stop or reduce the payments by lowering the face amount, or reducing the death benefit by taking a paid-up policy.
- If you have term life insurance and are looking for additional coverage, you may be able to convert to a permanent policy that could better fit your long-term goals — without having to take new medical tests.
- If you have permanent life insurance and are looking for more income flexibility, you may be able to annuitize the policy’s cash value and receive a guaranteed lifetime income.
Consider Your Personal Situation
There’s no way around it: You’re older than you were when you purchased your policy.
Insurance companies use age as a key factor when determining the cost of your coverage. Generally speaking: older = higher premiums. The same goes for any health changes. Remember, a new insurance company will most likely require you to take new medical tests. So if your health has worsened over the years, your premiums may be higher.
You should also consider your financial status. Chances are your net worth has increased over time. Maybe you received a promotion or landed a big business deal. Perhaps you’ve purchased real estate. If you’re worth more now than before, getting more insurance may be a smart decision. Yet you don’t necessarily need to cancel and replace what you have with a larger policy. It may make more sense to simply add a second policy to your existing coverage.
Take a Closer Look at the New Policy
If you have chosen to replace your policy, be sure to evaluate your decision. Before you sign on the dotted line, remember that the grass isn’t always greener on the other side — especially once you bend down and get a close look.
If you’ve met with a new insurance agent, he or she may have shown you charts and figures illustrating different levels of protection — in some cases, maybe even greater protection and higher cash value. But you really should dive deeper and compare those numbers to your existing policy. Review your personal situation to make sure the new policy meets your needs and that you understand the consequences of replacing a policy. Some things to consider:
- Initial costs – When you buy a new permanent policy, the initial costs can be high due to surrender charges and other expenses an insurance company incurs (including commission). You are responsible for these expenses, which could mean an immediate reduction in the cash value available in the new policy.
- Financial strength– How h3 is the new insurer? A life insurance contract is a long-term commitment, and it’s important to do business with a reliable company. A good way to compare companies is to look at their financial strength ratings.
- Contestability clauses– A new insurance policy will come with a new contestability clause. During a limited period of time after a policy has been in force (in many cases two years), the insurance company generally has the right to investigate any death claims and deny them based on inaccurate information given on the application.
Take the Right Step for You
If you think your life insurance needs are different today than they were yesterday, it’s time to talk to a financial professional about your options. Then you’ll be prepared to make a decision that’s right for you today — and tomorrow.