Life insurance can give you the peace of mind that the people you want to take care of will receive financial protection in the event that you pass away. As you progress in life, changes in your lifestyle and other circumstances may have you considering switching life insurance policies. Perhaps you want a new provider or new type of policy. While it is worth considering whether the changes you want can be made with your current provider, you may find that the only way to achieve your new life insurance objective is to switch to a new policy. This Bankrate guide discusses potential reasons to switch life insurance policies, what to look for in a new policy and how to determine an appropriate coverage amount.

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Reasons to switch life insurance policies

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, your income or estate has grown in size 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 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.
  • You’ve reached the end of the 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.
  • You can no longer afford the premium payments and need to adjust your coverage or find cheaper coverage.
  • You’ve discovered that your beneficiaries will have more (or less) financial need than you thought, and you’d like to change your death benefit amount.
  • You want to incorporate a cash value policy in your comprehensive financial plans.

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

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, may cost more but do not expire under most circumstances as long as you pay your premium. These policies can 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 policy 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 if you switch to a new insurer.

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 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 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 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 upfront 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. 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. 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. 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. Do you want your death benefit to be able to pay for your children’s education, for example, or to allow your spouse to live as he or she is accustomed to? Bankrate’s life insurance calculator might help with this step.
  • 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. If you have a spouse and young children, for example, it might not be enough to leave them money for education and living expenses. You’ll also want to consider any debts you may have that your estate might be responsible for if you pass away.

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.
    • 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 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 which do not require a medical exam are going to be more expensive in general.