Should You Replace Your Life Insurance Policy?

life insurance policy replacement

Should you replace your life insurance policy?

Top 10 reasons why you would need to consider replacing your life insurance policy

  1. Your current term life insurance policy is running out and premiums are increasing
  2. You had a baby
  3. You bought a new home and have more debt
  4. You are retiring
  5. You find a cheaper policy
  6. You quit smoking or using tobacco
  7. Your health has improved since you purchased your last policy
  8. You have remarried
  9. Your finances – has your income increased or decreased
  10. Do you have an old term policy that doesn’t include living benefits?

Maybe you purchased a 10 year term life insurance policy and your term is expiring.

Or maybe you didn’t buy enough life insurance originally.

It’s possible that during your life, you might consider changing your life insurance policy.

Perhaps you are approached by a life insurance agent requesting that you cancel your existing policy in order to buy a replacement life insurance policy that they offer.

This is usually the case.

Whether you should contemplate canceling or not really depends on the type of policy, the needs of your loved ones, and your long-term financial goals.

Before considering making any switch to a new life insurance policy, there are a few key points to consider.

Before Replacing Your Life Insurance Policy, Consider This…

In the event that you make the decision to change or cancel your life insurance policy, there are some important things to consider.  What type of life insurance do you currently own?  How old were you when you bought your policy and how old are you now?

Thoroughly understanding your decision can only increase your chances of coming out on top.

Research the life insurance options available

There are many types of life insurance policies available today.  Have your agent explain the difference between term life insurance and permanent life insurance.  Term life insurance is temporary and is usually bought in the following lengths:

  • Annually Renewable Term life insurance or Yearly Renewable Term life insurance
  • 5 year term life insurance
  • 10 year term life insurance
  • 15 year term life insurance
  • 20 year term life insurance
  • 25 year term life insurance
  • 30 year term life insurance
  • 35 year term life insurance (AIG Select a term)
  • 40 year term life insurance (Fidelity Life)

If you need coverage for a longer period of time you will need to consider a permanent  life insurance policy.  Some of the permanent life policies available today are:

These are only some of the options and all depend on your personal needs.  These policies are offered by many of the best life insurance companies available like Transamerica, American National, North American, Assurity Life, Fidelity Life, Reliastar Life, Genworth,  and Protective life.

Even Dave Ramsey has an opinion on what type of life insurance is good to buy.  You can also find quotes from reliable brokerage outlets like Geico Life insurance and Progressive Life Insurance.

You will probably need a new life insurance medical exam

When you initially purchased your life insurance policy, you were required to undergo a medical exam.  If you were much younger, you may have had some health changes along the way. If you have developed a major health issue, you may not qualify for a cheaper life insurance policy.   You might even be uninsurable, so do not cancel your old policy until you have the new one in place.

There are actually some life insurance no exam policies that you might want to consider too.

Your waiting period will start over

Learn about your policy’s contestable period and suicide provision.  The incontestability clause, while standard on most life insurance policies, simply means that during the first two years of a newly purchased policy, your death benefit could be contested or denied.  This is not a deal killer as long as you are 100% truthful with the answers on the life insurance application.

If you are older and are looking to replace your final expense policy, you really need to understand the incontestable period.

If you have become unhealthy, you may be able to convert your term life insurance to a permanent life insurance policy

If you have become unhealthy you should explore all conversion options on your old term life insurance policy.  You should be dealing with an independent life insurance broker that has access to all of the life insurance companies.  Have your agent review all options available to you with your current life insurance policy.  There are instances where you can convert your policy into the type of plan you are searching for, while avoiding the medical exam and contestable period.  Be wary of the agent if they are not able to offer more options.

What will the new cost to replace your life insurance policy be

There are numerous costs involved when trading in your current life insurance policy for a new one.  In order to gain a better understanding, go over the following checklist when considering replacement.

What to Consider When Replacing Your Current Life Insurance

  1. What will be your new monthly premiums for the life insurance policy?
  2. If this is a permanent policy with cash value, should you do a 1035 exchange?
  3. If permanent cash value policy, what are the loan provisions?
  4. If you are replacing a cash value policy – will the old life insurance policy cover the entire cost of the replacement policy?
  5. The cost of life insurance increases as you get older, will you have life insurance coverage for a longer period of time?
  6. Will your life insurance premiums increase?
  7. Will you be faced with surrender charges from your old life insurance policy?

You will need to provide your current policy number on the new life insurance application

Your new life insurance company will need to notify your current life insurance company to let them know you are replacing their policy.  Anytime you surrender a life insurance policy in order to replace it with a new one, you will be asked a series of questions.  There’s nothing to worry about.  These questions assist in protecting you from fraud or scams, while allowing the insurance companies to monitor and ensure everything is done properly.  This is done to make sure that the replacement is in your best interest.

The first question on the replacement form is your policy number, name of life insurance company and your original policy date.  Next will be asked the reason for replacement.  This may be:

  • Replacing for a cheaper life insurance rate
  • Replacing for a longer term period
  • Replacing for a policy that offers living benefits
  • Replacing for a policy for an indexed universal life insurance policy

Just be truthful here and make sure that the replacement form is filled out completely before you sign.

The questions that you are asked when you decide to replace your current life insurance policy works to protect you, as well as the insurance provider from life insurance agents that routinely replace their client’s policies in order to gain a commission.  This type of behavior is known as “churning”.

Avoid Scams When Replacing Your Life Insurance

If you are just not sure what to do about replacing your life insurance policy, get a second opinion.  You don’t want to make a bad decision that will negatively effect your families financial future.  If you feel that the life insurance agent that is suggesting replacing your life insurance policy is leaving out needed information, you should back out and explore other options.  You may not even need to replace your policy.

You should be concerned if the agent replacing your policy

  • Ask you not to inform your current insurer you are replacing your policy [Remember what Churning is]
  • Ask you not to speak with your family or previous agent about the replacement
  • Ask you to sign forms that are incomplete
  • Tries to blow holes in your current policy or the life insurance company it is with
  • Wants you to finance your new policy with the cash value from your old life insurance policy

If your financial situation or needs change, you may want to consider changing your life insurance policy.  Although it may be costly or difficult to change your plan, in many cases, it’s worth the effort.

Just be sure that you are working with a reputable licensed broker, and when in doubt, get a second opinion.

We are always here to help you know the facts about life insurance policy replacement.  You can call us here at Ogletree Financial at 1-800-712-8519 to discuss your situation or get a life insurance quote for a new policy.