Life insurance can give you and your loved ones a sense of security in the event of death. However, life insurance doesn’t have a single size that fits all. You may find yourself in a position that necessitates you to alter the death benefit or select a different type of policy that better suits your desires. Your current insurance provider may be able to assist you, or you may consider that a change to life insurance companies is more beneficial. Read on as Bankrate explains when it’s appropriate to change your life insurance, what to look for in a new policy and how to determine the appropriate amount of coverage.
Changing insurance companies: causes of change
If you already have a solid policy, you may be questioning why you would want to alter the type of insurance or company you have. Any number of causes could be involved:
- Your requirements have evolved. Perhaps your children have grown up and no longer require assistance, you have been divorced or your income or estate has increased in value.
- The level of coverage you have now is not sufficient. Perhaps you should consider switching to a term policy instead of a whole life insurance policy to have permanent coverage. Alternatively, you would like to hủy all of your life insurance for the simple reason of having a term policy.
- You’re switching occupations. You may have switched employers, and now you need to consider the advantages of your current job relative to the advantages of your new job. If so, you may need to purchase insurance through a private organization, and you may need to subsidize the cost of the policy with your current employer.
- Your strategy is complete. You may reach the end of your term without having to pay for insurance, but you still need to have coverage in place. Perhaps you want to start a policy with a lower death benefit that covers your children as adults, or you only want to have coverage for the final costs of your policy.
- Your financial situation has altered. It may be that you no longer have the funds necessary to pay the premiums, and need to alter your coverage or find a cheaper alternative.
- Alternatively, you’ve chosen to include a cash value strategy in your overall financial plan.
The finances of your loved one have altered. Perhaps you’ve recognized that your beneficiaries have greater (or less) financial necessity than you expected, so you would like to alter the amount of your death benefit.
Regardless, you may discover that your previous strategy wasn’t the most effective strategy to pursue.
How to transition out of your life insurance.
Changing insurance companies or policies can be scary, but it’s not necessary. Here is the most simple way to accomplish it: first step by step.
Select the type of insurance you want to take.
The first step is determining if you want insurance that lasts over the term or if you want it permanent. Term insurance has a specific duration and may necessitate a medical exam. These strategies are less expensive than permanent insurance, but they will become more expensive as you age.
Permanent life insurance, which is called whole, universal, and variable life insurance, is typically more expensive but does not have an expiry date under most circumstances (as long as you pay your premium). These strategies may have additional benefits, including a cash value account that is maintained throughout the policy’s life. If you’re unsure of the type of life insurance that’s right for you, consider talking to a financial advisor or licensed insurance agent.
Figure out how much coverage you need
After you determine the type of insurance you want, you must choose how much to purchase. Think about what you want the death benefit to cover and how you want your beneficiary to utilize it.
Are you attempting to replace the income of your spouse, leave a legacy for your children or simply provide for the burial expenses of your loved one? Are there debts that you want to make sure are paid if you die?
The amount of money you choose to spend on the death benefit will depend on what you want it to accomplish and how much money you can afford to pay for it. Again, talking to a financial advisor or insurance agent could assist you in determining how much life insurance is appropriate for you.
Try to alter your policy in place
After you understand what alterations you want to make, you can speak to your current insurance provider or representative about the policy’s terms that would allow you to make alterations to it that would be beneficial to your new needs. It may not be possible, but it is beneficial to inquire. Additionally, depending on the type of alterations you want to make, you may be able to skip the health questionnaire or medical exam, which is less likely when completely switching to a new insurance company.
Apply for your new policy, if relevant
If you were unable to make alterations to your current policy, and chose to create a new one, you will need to go through an insurance agent or directly online through an insurance company. While many life insurance companies facilitate the process of starting a policy quote online, it is likely that you will need to work with an agent in order to complete the process.
Depending on the type of policy, you may be mandated to have a medical exam. If a medical exam is not necessary, remember that your premiums will probably be higher because of the increased risk to the insurance company. There may be a period of waiting before you are officially notified by your insurance company that you have been accepted, this is especially true if you are switching companies.
Ensure that your policy is relevant
Experts in insurance recommend purchasing your new policy and making sure it is active before deleting your old policy. You probably don’t want an empty space in the coverage. It may take a few months for your new policy to pay out on some instances, and the typical duration of a two year contest is two years, either way, your insurance company can deny or challenge the claims. You may want to verify this information before switching over.
Discussing your insurance plans with a licensed agent as you transition can help you to ensure you receive what you want from the switch. Reviewing your current insurance policy with your insurance provider or agent is also recommended. Additionally, if you’re concerned about your estate or the protection of your beneficiaries, you may want to speak to a certified financial planner in order to help you determine what level of coverage is appropriate for your situation.
Things to consider before switching out of life insurance.
When you alter your insurance strategy, it’s important to remember:
See the upfront cost. You may need to pay the entire cost of the policy in advance. If your desire is to save money, be sure that the money you save from a new policy will be of value in paying these initial costs again.
- Pay attention to taxes. Think about the tax consequences of switching to a new policy before you make a commitment to an old one. If you’re unsure of what these might be, talk to a financial expert or tax accountant.
- Be aware of the potential increase in prices. The premiums on your new insurance may be higher or you may not be covered under the same conditions, depending on your age or alterations to your health.
- Contrast the benefits. Examine the benefits of the new policies you’re considering in detail to make sure you don’t lose any essential coverage.
- Think about altering the strategy initially. You may be able to reduce spending and time by making minor alterations or additions to your current policy instead of taking it off. In order to remain as a policyholder, your insurance company may be willing to make changes to your policy, such as converting it from a term to a permanent one.
- Watch the waiting period. Many new regulations have a period of espera before certain types of death benefits become legitimate. Think about this before switching to a new policy.
- Understanding any losses or payments associated with your previous policy. When you canceled an existing policy, make sure you understand the financial effects of terminating that coverage. If you have a consistent policy, such as losing all of the money you’ve already spent, consider whether it’s worth it. This is also beneficial because it allows you to consider having your new policy before dropping your old policy in order to make sure there is no lapsed coverage.
- Discussions with your current provider. Many insurance companies want to maintain their current clients. If you’re thinking of switching insurance companies, talk to an insurance agent at your current insurance provider and see if they can create a policy that satisfies your desires.
Through these actions, you may be able to avoid mistakes that would lead to a higher cost of time.
Advice on purchasing the correct amount of insurance
If you’re thinking of changing your life insurance type and want to know how much to purchase, the following information may be of help.
Think about what you would want your beneficiaries to be able to pay for on their own. It’s vital to understand what you want the death benefit to be utilized for, whether it’s to assist your child’s school funding or to assist your partner in paying off their mortgage. This will assist you in determining the degree to which you require coverage. Using a calculator that calculates life insurance can be beneficial.
Think about the monthly payment you are comfortable with. A higher death benefit amount is associated with higher premiums, so it’s important to consider your budget when doing so. Discussing your finances with a financial advisor, a certified financial planner or an insurance agent could assist you in deciding what insurance policy is most beneficial to you.
Think about your overall financial strategy. For instance, you may want to consider a policy that benefits long-term care, this could be used if you need to pay for assisted living or a nursing home while you’re still mortal. This can assist in safeguarding your savings and other assets, such as your home, that would be at risk if you lack the funds necessary to provide long-term care.
Don’t forget to account for the debt. Debt is not necessarily erased when you pass. As a result, it’s vital to consider any debts that your estate or members of the family may owe you if you pass away. This may have an effect on their capacity to utilize the death benefit for the intended purpose, if they must pay off their debts first.
