Life insurance can provide you and your loved ones with the peace of mind of financial protection in case you pass away. But life insurance policies are not one size fits all. You may find yourself in a position where you need to adjust your death benefit or select another type of policy that better suits your needs. Your current provider might be able to help you out, or you may find that changing life insurance companies is a better option. Read on as Bankrate explains when to switch your life insurance, what to look for in a new policy and how to determine an appropriate coverage amount.

Changing life insurance companies: reasons to switch

If you’ve already got a good policy, you may be wondering why you would want to switch life insurance companies or the type of policy you have. 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 income or estate has grown in size.
  • Your current level of coverage is no longer suitable. Maybe you want 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 a term policy.
  • You’re changing jobs. You may have switched employers and now need to consider the benefits that you were receiving compared to the benefits at your new job, and whether you need to subsidize that coverage with a privately owned policy.
  • Your policy is ending. You could reach the end of your term policy but still need coverage of some type. Perhaps you want to get a policy with a lower death benefit now that your children are grown, or you only want coverage for your final expenses.
  • Your finances have changed. It could be that you can no longer afford the premium payments and need to adjust your coverage or find cheaper coverage. Or, you’ve decided you want to incorporate a cash value policy in your comprehensive financial plan.
  • Your loved one’s finances have changed. Maybe you’ve discovered that your beneficiaries will have more (or less) financial need than you thought, so you’d like to change your death benefit amount.

Whatever the reason, you might find that your previous plan isn’t a plan that you need to continue carrying.

How to switch your life insurance

Switching life insurance policies or companies may seem daunting, but it doesn’t have to be. Here’s the easiest way to go about it, step by step.

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 are cheaper than permanent life insurance but will become more expensive to buy as you get older.

Permanent life insurance, such as whole, universal and variable life insurance products, typically cost more but do not expire under most circumstances (as long as you pay your premium). These policies may have additional benefits, such as a cash value account that accrues throughout the life of the policy. If you are unsure which type of life insurance is right for you, consider speaking with a financial advisor or licensed insurance agent.

Determine how much coverage you need

After you determine the type of policy to buy, you’ll need 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? Do you have debts that you want to make sure are paid if you pass away?

The death benefit amount you choose will depend on what you want it to be used for and how much you can afford to purchase. Again, speaking with a financial advisor or insurance agent could help you determine how much life insurance coverage is right for you.

See if you can adjust your policy instead

After you know what changes you want to make, you can talk to your current insurer or agent to see if your policy includes terms that allow you to make changes to it to make it work for your new needs. It might not be an option, but it doesn’t hurt to ask. Also, depending on the type of changes you’d like to make, you may be able to avoid a health questionnaire or a medical exam, which is not as likely when switching life insurance companies entirely.

Apply for your new policy, if applicable

If you weren’t able to make changes to your existing policy and have decided to get a new one, you’ll have to apply through an insurance agent or apply online directly through an insurer. While many life insurance companies allow you to start a policy quote online, it’s likely you’ll have to work with an agent to complete the process.

Depending on the type of policy, you may be required to undergo a medical exam. If a medical exam is not required, keep in mind that your premiums will likely be higher to account for the increased risk to the life insurance company. There will probably be a waiting period before you are notified of your insurer’s acceptance of your application, especially if you are switching companies.

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 challenge 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 or agent may also be advisable. Additionally, if you are concerned about your estate or the financial protection of your beneficiaries, you may even want to speak to a certified financial planner to help determine what coverage level is right for your situation.

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 may have fees to pay up front when you purchase a new policy. 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.
  • Pay attention to taxes. Consider the tax consequences of dropping your old policy before committing to a new one. If you’re not sure what these might be, consult a financial expert or tax accountant.
  • 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. Look closely at the benefits of the new policies you are considering to make sure that you aren’t losing any coverage that is essential to you.
  • 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. In order to keep you as a policyholder, your insurer may be willing to make adjustments to your policy, such as switching it from term to permanent.
  • 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.
  • Understand any losses or payouts from your old policy. When you cancel an existing policy, make sure you know any financial consequences of terminating that coverage. If you have a permanent policy, for instance, consider whether it is worth losing the money you’ve already paid into it. It is also a good idea to consider having your new policy in place before terminating your old policy just to make sure you have no lapse in coverage.
  • Talk to your current provider. Most insurance companies would like to retain their existing customers. If you are considering changing insurance companies, talk to an insurance agent at your current provider and see if they might be able to draft a policy that meets your needs.

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. It’s important to have an idea of what you might want the death benefit to be used for, whether it is to help your child pay for school or to help your partner pay off your mortgage. This will help you better determine the amount of coverage that you need. Using a life insurance calculator can help.
  • Consider the monthly premium you can afford. A higher death benefit amount means higher premiums, so taking your budget into account is an important step. Talking with a financial advisor, certified financial planner or insurance agent could help you decide what premium works best for you.
  • Consider your overall financial plans. For example, you may want to consider a policy that has a long-term care benefit that could be used if you need to pay for assisted living or a nursing home while you are still alive. This can help protect your savings and other assets like your home that could be at risk if you do not have the funds to pay for long-term care.
  • Don’t forget to take debt into account. Debt does not necessarily go away when you pass. For that reason, it’s important to consider any debts that your estate or family members may be responsible for if you pass away. This may impact their ability to use the death benefit for the intended purpose if it has to be used to pay off debts first.

Frequently asked questions

    • 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 (in most circumstances), and also offers a cash value component that you can borrow money from prior to death. Premiums also differ between term and life policies, because a term life policy may expire before any death benefit is paid out while a whole life policy almost always guarantees a paid claim. As such, term policies are typically cheaper and may be seen as a more budget-friendly option, depending on your short- and long-term needs.
    • The best life insurance company for you will depend on a number of factors specific to your situation. Consider the amount of coverage you need, the term length that suits you best and the premium you can afford. Speaking with a licensed agent or requesting life insurance quotes can give you a better idea of what’s available. Based on Bankrate’s in-depth analysis, MassMutual, Northwestern Mutual and State Farm might be worth looking into.
    • While you can switch life insurance companies or policies, many life insurance professionals 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 or agent 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.
    • Although medical exams are common when applying for life insurance, not all companies require them. In general, you will need to complete a questionnaire with details about your health, but if you are looking for a low amount of coverage, you may not need the exam. Some types of insurance, such as burial insurance, don’t require a physical exam of applicants. Keep in mind that policies that do not require a medical exam are going to be more expensive in general.
    • You should consider switching life insurance companies when your coverage needs change. Perhaps you’ve paid off your house or your child has completed college, and you no longer need to set aside money for those major expenses. That is a good time to reevaluate your life insurance needs and shop around to determine if there is a better policy for your situation. Speaking with an agent can help.