Research all your options with the article references and info below. You may have options you weren’t aware of, so be sure to read carefully.
Purchasing a new policy may be the best answer, but not always.
Understanding Life Insurance Conversion – Information for people who are not healthy enough to buy a new policy.
Tips on Saving Money on Your Existing Policy
You may be able to save on premiums by reducing your death benefit or decreasing your term length. Most companies will allow a one-time reduction of face value or reduction of term length. Both of these will reduce your premiums.
If you’ve gotten healthier since your policy was issued or stopped smoking, you should first apply for a reconsideration of health classification, which will potentially lower your premiums if approved at a better rate class. For example, if you were originally rated at Standard for taking prescription medication, which you no longer take or need, you might now be a “preferred” candidate. If approved, your premiums will be reduced.
Top Reasons to Replace an Existing Life Insurance Policy
- Level Term Period is Expiring – Many people purchase a term policy for its affordability, and then when the level premium period comes to an end, they still need coverage. Unfortunately, the renewal rates are not usually palatable. This is a great reason to replace your policy.
- Company Ratings Downgrade – Perhaps you’re no longer comfortable with the financial stability of your current carrier. Perhaps they were downgraded.
- Needs Have Changed – Let’s say you bought a term policy thinking you only needed 20 year term, and later you decide you need 30, or vice versa.
- Health Has Improved – You might save more money purchasing a new policy if your health has improved than filing for a rate class reconsideration.
IF you do decide to replace your current policy, you need to know a few important facts:
- You will be required to inform your agent of the replacement and list the policy details on your new application.
- The company you submit your new application to will probably send your old company a letter informing them that your may be replacing their policy.
- That letter will probably cause your old company to send you a letter telling you all the reasons why you shouldn’t switch to the new company.
The two main reasons you might not want to change policies are surrender charges (only in permanent plans such as whole life or universal life), and your new policy will likely contain a new two year contestable period, which means the company could potentially weasel out of paying the life insurance proceeds upon your death if you die within 2 years of purchasing the policy and they find that you answered questions fraudulently on your application. (If you answer all your questions on your application honestly, you have nothing to worry about.)
There are many ways to replace your policy if this is what you decide.
- You may simply stop paying your premiums and let your current policy lapse.
- You might do a 1035 exchange into a new policy
- Be sure to let your agent know you are replacing your policy so you can complete the state required forms
Most importantly, it is highly advised that you continue to pay the premiums on your current policy while your new application for life insurance is in the underwriting process. If replacing, you can stop paying the premiums once your new policy is in force.
For more information on replacing an existing life insurance policy, please see our article titled “I can’t afford my life insurance premiums. Now what?“