Life insurance offers you and your loved ones financial protection and peace of mind in the event of your passing. However, life insurance policies are not one-size-fits-all. You may need to adjust your death benefit or choose a different type of policy to better meet your needs. Your current provider might assist with these changes, but switching life insurance companies could also be a viable option.

Changing life insurance companies: reasons to switch

If you already have a good life insurance policy, you might wonder why you would consider switching companies or changing your policy type. There are various reasons you might need to make a change:

  • Your needs have changed. Your children may have grown and no longer need support, you’ve gone through a divorce, or your income or estate has increased.
  • Your current coverage is no longer suitable. You might want to switch from a term policy to whole life insurance for permanent coverage, or you may prefer to cancel a whole life policy for the simplicity of term insurance.
  • You’re changing jobs. A change in employment might necessitate a review of the group life insurance benefits you had compared to those at your new job, and you might need to supplement that coverage with a private policy.
  • Your policy is ending. If your term policy is expiring but you still need coverage, you might want to get a policy with a lower death benefit now that your children are grown or only need coverage for final expenses.
  • Your finances have changed. You may no longer afford your premium payments and need to adjust or find cheaper coverage. Alternatively, you might want to include a cash value policy in your comprehensive financial plan.
  • Your loved one’s finances have changed. If your beneficiaries have more or less financial need than you initially thought, you might want to adjust your death benefit amount.
  • Your health has improved. Positive changes to your health, such as quitting smoking or losing weight, might qualify you for a better premium.

Whatever the reason, your current policy may no longer fit your needs, and considering a change could be beneficial.

How to switch your life insurance

Switching life insurance policies or companies might seem overwhelming, but it doesn’t have to be. Here’s a step-by-step guide to make the process easier:

Choose the type of life insurance you want

Before you cancel your current life insurance policy, decide what type of new policy you want. Specifically, determine whether you prefer term or permanent life insurance. As the name implies, term insurance provides coverage for a specified period.

If you want coverage that lasts your entire life, consider permanent life insurance, which includes whole, universal, and variable life insurance products. As long as you pay the premiums, you remain covered. Permanent policies often come with additional benefits, such as a cash value component that can grow over time. Although these policies typically cost more than term insurance, they can offer financial security to your beneficiaries.

Keep in mind that both term and permanent life insurance will likely be more expensive than when you initially purchased your policy. This is due to your increased age, as life insurance premiums generally rise as you get older and the risk of filing a claim increases.

Determine how much coverage you need

Once you’ve decided on the type of policy to purchase, the next step is to determine the amount of coverage you need. Think about what you want the death benefit payout to cover and how you intend for your beneficiary to use it.

Are you aiming to replace your income for your spouse, leave an inheritance for your children, or simply cover burial expenses? Do you have debts you want to ensure are paid off if you pass away?

The amount of the death benefit will depend on your intended use and what you can afford. Consulting with a financial advisor or insurance agent can help you determine the appropriate amount of life insurance coverage for your situation.

See if you can adjust your policy instead

Once you’ve identified the changes you need, contact your current insurer or agent to see if your policy allows for modifications to meet your new needs. While it may not always be possible, it’s worth inquiring. Depending on the adjustments you want to make, you might avoid the need for a health questionnaire or medical exam, which is less likely if you switch life insurance companies entirely.

Apply for your new policy, if applicable

If you can’t modify your existing policy and decide to get a new one, you’ll need to apply either through an insurance agent or online. Many insurers let you start a quote online, though completing the process might require working with an agent.

Thanks to advancements in accelerated underwriting, a medical exam might not be necessary. Previously, no-exam life insurance often meant higher premiums, but that’s no longer always the case.

Make sure your policy is active

Insurance experts recommend ensuring your new policy is active before canceling your old one to avoid a coverage gap.

Check for any waiting periods with the new policy you’re considering. For example, if you are purchasing guaranteed issue life insurance, clarify with a representative how the policy pays out. In some cases, such policies have a graded death benefit, meaning your beneficiaries may not receive a full payout if death occurs within the first two years.

Be aware of other clauses or exclusions that might reset when you change policies, such as:

  • Contestability period: The insurer might reserve the right to contest the claim based on the insured’s application if the insured dies within the first two years.
  • Suicide clause: If the insured dies by suicide within the first two years of the policy, the insurer might reserve the right to deny the claim.

Consulting a licensed insurance agent during this process can help ensure you get the desired outcome from the switch. Reviewing your current policy with your insurer or agent may also be beneficial. Additionally, if you are concerned about your estate or the financial protection of your beneficiaries, speaking with a certified financial planner can help determine the appropriate coverage level for your situation.

Things to consider when switching life insurance

When you switch your life insurance policy, keep these tips in mind:

  • Check for surrender charges: If you’re canceling a permanent life insurance policy, you might incur a fee. This amount decreases over the length of the policy, so find out how much you’ll be charged before you cancel.
  • Consider tax implications: Dropping your old policy might have tax consequences. Consult a financial expert or tax accountant to understand these before committing to a new policy.
  • Be aware of potential premium increases: Premiums on your new policy may be higher, or you might not be insurable under the same conditions due to age or health changes.
  • Compare benefits: Ensure that new policies provide the coverage you need without losing any essential benefits.
  • Explore policy modifications: You might save time and money by amending or adding to your current policy. Your insurer might be willing to make adjustments, such as switching from term to permanent, to keep you as a policyholder.
  • Understand waiting periods: Most new policies have a waiting period before certain death benefits become effective. Consider this before replacing your old policy.
  • Evaluate financial consequences: Understand any losses or payouts from your old policy. If you have a permanent policy, consider whether it’s worth losing the money you’ve already invested. It’s wise to have your new policy in place before terminating your old one to avoid a lapse in coverage.
  • Talk to your current provider: Your current insurance company might be able to draft a policy that meets your needs, as they prefer to retain existing customers.
  • Double-check bundling discounts: Switching providers might result in the loss of current bundling discounts, which could affect your home or auto insurance rates. Consider whether you can move other insurance policies to your new provider to maintain a bundling discount.

By following these steps, you can avoid mistakes that might cost you more money over time.

Tips for purchasing the right amount of coverage

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

  • Determine the needs of your beneficiaries: Consider what expenses you want the death benefit to cover. This could include helping your child pay for school or helping your partner pay off the mortgage. Understanding these needs will help you determine the amount of coverage you require. Using a life insurance calculator can assist in this process.
  • Assess your budget for premiums: A higher death benefit means higher premiums. It’s important to take your budget into account to ensure you can afford the monthly premiums. Consulting with a financial advisor, certified financial planner, or licensed insurance agent can help you decide on a premium that fits your financial situation.
  • Align with your overall financial plans: Consider policies that offer additional benefits, such as long-term care coverage, which can be used for assisted living or nursing home expenses while you’re still alive. This can protect your savings and other assets like your home.
  • Account for your debts: Debt doesn’t necessarily disappear when you pass away. Consider any debts that your estate or family members may be responsible for if you die. This could impact their ability to use the death benefit for its intended purpose if it needs to be used to pay off debts first.

By considering these factors, you can better determine the right amount of life insurance coverage for your needs.

Alternatives to switching life insurance policies

There may be instances where you opt not to cancel your current policy to acquire a new one. However, there are alternative steps you can take to attain the life insurance coverage you desire.

Check if you can change your current coverage

If your insurance needs have evolved since you obtained your policy, reach out to your insurance provider to inquire about the possibility of adjusting your policy. While there’s no guarantee they can accommodate your request, it’s worth exploring the option.

Consider your conversion or renewal options

If your term policy is nearing its expiration and you wish to maintain coverage, contact your insurance provider to inquire about converting it to a permanent life insurance policy. If conversion isn’t feasible, your provider may offer options such as renewing the policy or extending its term for a short period, depending on your situation.

Keep your existing policy and purchase a second one

If you’re in a stable financial position and planning for your future needs, consider a laddering strategy by purchasing overlapping term policies. This approach ensures comprehensive coverage and a solid financial safety net during critical years. For example, you could buy policies with durations like 30 years, 20 years, and 10 years. As each policy term ends, your coverage decreases, but it provides larger payouts during the earlier, more financially vulnerable years for your dependents.