While switching life insurance companies/policies every few years sounds like a good idea, you need to be careful of the misinterpretation of making gains on your life insurance policy and what the actual costs may be. With most situations, there is very little to gain by switching policies frequently, because the increasing costs of the policy will just end up overriding the potential benefits.
Promotional rates offered through life insurance companies lose their appeal if you conduct some simple calculations. As each year passes, the cost of insuring you increases based on actuarial tables. This means that regardless of if you are receiving a substantial discount on your new term life insurance policy, you are also paying ever increasing premiums. You may even save money the first time that you switch policies, but overall after the years sum up you will realize that you are paying more in premiums each time you decide to switch policies.
With all of this being said, there are reasons for you to decide to switch your life insurance company or policy. These reasons pertain mainly to your health and could save you money on other policies, especially if there was a drastic increase in your health over the last few years.
Factors Pertaining to Your Life Insurance Premium
The factors pertaining to your life insurance premiums include the following:
- Age – Obviously, the younger you are the lower your premiums are going to be. This is because the odds of you passing away are rather low than compared to when you are much older. Age plays a significant role in your premiums and will make your premiums go up with time, but this is still not necessarily a reason to switch policies every few years, considering that sticking with one policy is by far the most beneficial option.
- Tobacco/Drug Use – Tobacco or drug use is a huge factor in determining a life insurance premiums. Drug use may even get you downright denied, simply because of the health implications associated with drug usage. While tobacco won’t get you denied, it will make your rates significantly higher. Companies may underwrite tobacco usage in a variety of ways, so if you currently or have used tobacco in the past few years, you may want to find the company that is the most lenient in terms of tobacco.
- Health Status – Overall, the cleaner your medical records and history are, the lower your premiums will be. This means that you need to avoid becoming obese, smoking, or not taking care of yourself physically. Unfortunately, if your family has a medical history of ill-health, then this can cause your premiums to go up considerably. This means your family having a history of cancer, diabetes, or any other diseases that can be life-threatening. Other than that, if you are in good health, do not smoke, and your family does not have a history of disease or life-threatening illnesses, then you should have substantially low premiums and may fall into a more beneficial rate class.
- Interest Rates – The insurance company invests premium dollars in order to have money to pay future claims. Life insurance portfolios are invested in high-quality, long term bonds so that way if interest rates go down, the money earned on investment goes down and premiums go up.
These factors will determine what rate class you will fall into, ultimately deciding how expensive your premiums will be. Ensuring that you are in excellent health will allow you to be able to meet the requirements for some of the most beneficial rate classes and will ultimately save you money month to money.
Rather than switching your term life insurance policies/companies every few years, it would be much more advantageous just to choose wisely before buying the original policy. Look for the best rates over a period of time that do not rely on discounts or promotions that will expire or fail to compensate for the increased risk of insuring you.
Therefore, if a financial advantage is your overall goal, a whole life policy may be an option for you. A whole life policy offers options that are not available in term life, which includes something called cash value. This cash value is built up over time as you pay your premiums, and you are able to withdraw or borrow against your accrued cash value of the policy. This also goes for a universal life insurance policy, in which there is some potential for gains, simply because of the degree of control you have over how premiums are invested. With all of this being said, it is important to talk to a life insurance agent before making financial decisions pertaining to life insurance and coverage for your family.