Even though it’s called life insurance, it doesn’t mean that you are locked into a policy for the rest of your life. In other words, if you purchase a policy, you have the option to assess your coverage and make changes to it, or even replace it, if doing so makes sense for your needs.
However, before you make the decision to replace your life insurance policy, there are some important factors that you should take into consideration before you proceed. Read on to find out about these important factors and why replacing your life insurance policy may be a good idea.
Why Would Replacing a Life Insurance Policy Make Sense?
Many people purchase life insurance and never assess their policy again. They just leave it as-is. However, that’s not always the best approach to take. It’s a wise idea to take interest in your policy and make changes, if necessary.
- You purchased your life insurance coverage when you were young, single, and renting an apartment. Now you are married, have children, and own a house. Your policy may not pay out as much as your dependents would need to offer them financial protection; for example, it may not offer enough to cover the cost of your mortgage and to send your children to college.
- When you purchased your life insurance policy, you had a diagnosis of a terminal illness. Now you have beaten the illness and are cured. In this case, the premiums on your existing policy may be high and you may be able to get a better price because your health has drastically improved.
There are dozens of reasons to replace your existing life insurance policy. That’s why it’s important to revisit your policy from time to time, assess the coverage it offers, and consider your needs. While you may not need to assess your coverage frequently, it is recommended that you do so whenever a major life event occurs; the birth of a child, a change in your career, a change to your health. You might be surprised to find that your existing coverage does not meet your current needs.
Should You Keep the Coverage You Have?
Just like there are instances when replacing your life insurance policy makes sense, there are also times when replacing it isn’t in your best interest. For instance, if you purchased your policy when you were young but there haven’t been many changes to your life and your dependents’ financial needs haven’t changed much, replacing your policy might not make sense. For example, if you were already married, had children, and owned a house when you purchased the policy and now you are older, replacement may not be the best idea. Why? – Because life insurance premiums are based on the state of your health when you purchased your policy. If you already have a policy and you replace it when you are older and less healthy than you were when you purchased it, your premiums will likely be higher.
Furthermore, when you replace your policy, the contestability period will be reset. Generally, the contestability period is effective for two years from the date that the policy went into effect. If you pass away within that time period, your life insurance provider could contest a claim and your beneficiaries may not receive the death benefit.
How Does Replacing Your Policy Work?
If you’ve decided that replacing your life insurance policy is a good idea, you’ll want to know how replacement works. Below, we highlight the general in’s and out’s of a policy replacement.
- Contact your current insurance provider or a new provider. You’ll have to answer some questions, just like you did when you applied for your initial policy. You will be asked whether or not you already have coverage, and if so, who your carrier is, what the policy number is, and when the policy expired. You will also be asked questions regarding your health and your lifestyle. Make sure to answer all questions honestly, as you don’t want to risk the chance that your insurer will contest coverage and deny a claim.
- Consider your current needs and what type of coverage would work best for you and your loved ones. This includes how much you can afford to spend on premiums, how much coverage will protect your family in the event of your death, and whether or not you should include any riders to the policy, such as an accelerated death benefit.
- Once you’ve found a policy that works for you and it is effective, you can proceed with canceling your existing policy. Though you can own more than one life insurance policy at the same time, it probably doesn’t make sense to, considering the fact that you’ll have to pay premiums on all policies.
Summing It Up
Review your current life insurance policy from time to time; at least with every major life event. If you find that your existing policy doesn’t suit your needs, replacing it could be beneficial. If you do decide to replace it, make sure that you wait until your new policy is effective before you cancel your existing coverage. Also, ensure that you are honest when you are applying for a new policy and keep current with premium payments; you don’t want to risk a denial of your death benefit.