Americans buy and sell, on average, seven different homes or properties throughout their life. They move through as many careers in their lifetime as well, especially the younger generation.
Insurance products sometimes need to be changed as well, for a couple reasons.
But, it’s not always advantageous for a consumer to make a change. A life insurance replacement only works if it’s beneficial in the long run. Just because there may be an immediate benefit doesn’t make it right.
If you are considering replacing your life insurance policy, here’s what you should evaluate for yourself first.
Life Insurance Replacement
Sometimes, a better product or different situation presents itself where you need to either upgrade or alter what you already have. If you’ve worn out a pair of jeans, you wouldn’t continue to wear them until they are just completely depleted right? Eventually, you’ll have to go buy new ones, or at least turn them into jean shorts!
Life insurance replacement stems from some of the same sort of thinking. Here are some reasons why someone might switch to a new maximum life insurance policy:
- Lower Cost
- Duration Change
- Need Change
- New Purpose For Coverage
One of the most common reasons we find for replacement, at least in the time period we’re in, is to lower the cost of the policy. Because the environment has changed over the last few years, life insurance replacement is becoming more common because prices are simply dropping. As life insurance expectancy has grown, insurance companies are discovering they are able to stretch their risks over a larger period of time, and they can decrease their premiums while still remaining competitive.
Another reason some might go through a life insurance replacement is to change the duration of their policy. Sometimes this is a direct result from seeking for a lower premium because someone could lower the duration to lower costs. But it can be the reverse, too. Someone may need the life insurance coverage longer to satisfy their needs, and the costs could raise.
A need change is another catalyst for a life insurance replacement. Buying a new house or first home, having a child or additional child, or a change in income could all be one of these. When life changes, so do your needs. When your needs change, you may need to update your policy or even replace it in order to satisfy the changing need. This could be anything from a change in duration, death benefit amount, or just price.
If a new purpose for coverage has come about, this might require a life insurance replacement, too. For example, let’s say you no longer need a term life insurance policy, but now you want to make the conversion over to permanent life insurance. Not only would you be changing your duration, but the entire policy type. The function and the purpose of the insurance would now be completely different. This is a very common type of replacement as needs and budget changes occur.
Things To Consider Before Replacement
Even if one of the items above fits your situation, a life insurance replacement may not still be the right thing for you. There are both internal and external factors you need to consider to ensure the policy is good not only now, but down the road. Here’s a quick list:
- Total Cost
- Conversion Credits
- Surrender Costs
If you are looking to save money, it’s good to know you’ve compared the total cost of the policy over it’s entire duration, not just the current expenses. Just because you can save a couple bucks now, doesn’t mean replacing the policy with a new one won’t end up costing you more. If you were to forego a 20 year term policy for a 1o year policy, you will save money. But what about year 11? If you know you’ll still need coverage in year 11, is the ten year still worth it when the premium sky rockets?
Are you healthy enough to qualify for the same rates as you already have? If not, your insurability might have worsened, which means you may not be able to qualify for a policy which compares to what you already have.
Conversion credits are another consideration. If you are looking to convert to a permanent policy, is it better to convert with the company you already have and use their conversion credits? Or will you be better off using an entirely different company.
If you have a cash value life insurance policy, and there is already cash build-up inside the policy, surrendering it for another policy might have consequences. There could be fees, taxes or other financial drawbacks of doing so.
Whatever the situation, make sure you review the life insurance replacement from all angles before you make a decision. And finally, make sure you never relinquish your ownership of your current policy before you’re approved for your new policy. A lapse in coverage could be detrimental, especially if you’re declined on the new policy and can no longer get covered, or worse, die at a time in between policies.
If you need a quote, click the link below and we’ll be happy to help you.