Switching your life insurance

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Life insurance coverage allows policyholders to take care of their loved ones financially after they pass away. Just as home and auto insurance provide peace of mind, life insurance allows policyholders to rest in the knowledge that their beneficiaries will be more financially secure after the policyholder’s death. At times, life insurance policyholders may be interested in switching to a new insurance provider, potentially for a different type of policy or coverage amount.

Whatever their reasoning, switching life insurance is a regulated process and must be completed according to set guidelines. Before canceling your policy, you may want to see if you can accomplish your life insurance goals by adjusting coverage with your current provider. Below, Bankrate’s insurance editorial team lays out how to switch your life insurance, what to look for in a new policy and how to decide how much coverage you’ll need.

Reasons to switch life insurance policies

If you’ve already got a good policy, why would you want to switch life insurance companies? There could be any number of reasons, including the following:

  • Your needs have changed. Perhaps your children have grown and no longer need support, you’ve gotten divorced or your current level of coverage is no longer necessary.
  • You’ve decided to switch from a term policy to whole life insurance to obtain permanent coverage  — or, conversely, you’d like to cancel your whole life policy for the simplicity of term.
  • You’ve reached the end of the term policy but still need coverage of some type.
  • You can no longer afford the premium payments.

Whatever the reason, you might find that your previous plan isn’t what you want.

How to switch your life insurance

Switching your insurance may seem daunting, but you can complete the process relatively simply. For maximum ease, you may want to consult the following steps:

  1. Choose the type of life insurance you want. The first step is to choose if you want term or permanent life insurance. Term insurance lasts for a certain period and may require a medical exam. These policies can also be more expensive to buy as you get older. Annuities and cash-value policies, such as whole, universal and variable life products, can be more complex and costlier to replace because they often involve surrender charges, 1035 exchanges and the use of policy loans to fund a new life insurance policy.
  2. Determine how much coverage you need. After you determine the type of policy to buy, it may be time to decide how much coverage you want. Consider what you want the death benefit payout to cover and how you’d like your beneficiary to use it. Are you looking to replace your income for your spouse, leave an inheritance for your children or just provide for burial expenses? The level of death benefit you choose will depend on what you want it to be used for.
  3. See if you can adjust your policy instead. After you know what changes you want to make, you can talk to your current insurer to see if there’s a way to adjust your policy to make it work for your new needs. It might not be an option, but it doesn’t hurt to ask. This tip is particularly helpful if you want to switch from term to whole life insurance because some providers offer that feature. Also, depending on the type of changes you’d like to make, you may be able to avoid health questions or a medical exam, which is not as likely if you switch to a new insurer.
  4. Make sure your policy is active. Insurance experts recommend purchasing your new policy and making sure it is active before canceling your old policy. You likely don’t want a gap in coverage. There may be a waiting period before your new policy will pay out on some claims, and there is generally a two year contestability period when your insurer can deny or contest claims. You may want to check on this information before you switch over.

Talking with a licensed insurance agent as you go along can help you to make sure you’re getting what you want out of the switch. Reviewing your current policy with your insurer may also be advisable.

Things to consider when switching life insurance

When you switch your policy, there are a few tips to keep in mind:

  • Look at upfront fees. You typically pay most of the fees of a life insurance policy upfront. If your motivation is saving money, be sure the money you save on a new policy will be worth paying these upfront costs once again. “There are upfront costs to issuing a policy, and it will take a while before the total revenues exceed their initial costs,” says Steven Weisbart, senior vice president and chief economist with the Insurance Information Institute. “If you buy a new policy, they want to be somewhat confident that you will pay premiums long enough to make this a profitable transaction for them.”
  • Pay attention to taxes. Consider the tax consequences of dropping your old policy before committing to a new one.
  • Know that prices may increase. Premiums on your new policy may be higher, or you may not be insurable under the same conditions, based on your age or changes to your health.
  • Compare benefits. Be sure to compare your rights and benefits under your new policy against the old one; they may not be the same.
  • Consider changing the policy first. You may be able to save time and money by amending or adding to your current policy instead of replacing it.
  • Note the waiting period. Most new policies have a waiting period before certain kinds of death benefits become effective. Consider this before replacing your old policy.
  • Talk to your current provider. If you’re on the fence about replacing your old policy, ask your insurance agent or company what options you may have.

By doing these things, you may be able to avoid mistakes that could cause you to pay more money over time.

Tips for purchasing the right amount of coverage

If you’re considering switching your life insurance and wondering how much life insurance to purchase, the following considerations may be helpful.

  • Consider the things that you would like your beneficiaries to be able to pay for in your absence. Add up financial obligations such as mortgage or rent payments, college tuition and debt. Bankrate’s life insurance calculator might help with this step.
  • Consider the monthly premium you can afford. A higher death benefit amount typically means higher monthly payments, so taking your budget into account is an important step. Talking with a licensed insurance agent could help you decide what premium works best for you.

Frequently asked questions

What is the difference between term life and whole life?

The most significant difference between term life and whole life insurance is that term life insurance covers the policyholder for a set amount of years, usually 10 to 30. Whole life insurance, on the other hand, covers the policyholder for life, as long as the premium is paid, and also offers a cash value component that you can draw money from prior to death.

What is the best life insurance company?

The best life insurance company will vary for everyone based on their specific coverage necessities, policy preferences and customer service needs. Before choosing a provider, you may want to request life insurance quotes from several top providers to see what life insurance policies will cost you.

Can you switch your life insurance at any time?

While you may be able to cancel your existing policy and purchase a new policy, many life insurance professionals may advise against doing so. You’ll want to examine your needs and budget before making this decision. Life insurance premiums are based primarily on age and health status, so as you age, you are likely to pay higher premiums for life insurance coverage. If the policy you currently have no longer meets your needs or the premium is unaffordable for your budget, talk to your insurer about your options before you make changes or switch carriers. You may be able to convert your existing policy or reduce your coverage amount to adjust to your new goals.

Is changing your life insurance provider illegal?

No, changing your life insurance provider is not illegal. However, it is illegal for a life insurance agent to steer a consumer into changing a policy that would put them at a disadvantage financially. Life insurance agents are fiduciaries, which means they must keep their clients’ best interests in mind. If you are considering changing your life insurance, seek advice from a licensed professional.

Written by
Lizzie Nealon
Insurance Writer
Lizzie Nealon is an insurance writer for Bankrate. Her favorite part of the job is making home, auto and life insurance digestible for readers so they can prepare for the future.
Edited by
Insurance Writer & Editor