Life's biggest moments — like getting married, buying a house and having a baby — can change the type of life insurance you need to feel secure. But is it always necessary to replace your current life insurance policies with new ones?
The Advantages of Your Current Life Insurance Policy
It's important to keep your life insurance policies current to meet your needs throughout your life. You may think it's necessary to cancel your current policy for a new one to account for changes in your life, but in most cases you do not need to get another life insurance policy to replace what you currently have. In many situations, the policy you own is your best bet.
Before deciding to replace your current policy, speak with a financial professional about updating your current policy. It's best to first assess your needs and decide what will be the best decision for the long term, including what is best for the people you are protecting. It's highly likely that you will be able to simply supplement or change the current policy to provide the coverage you need.
Regardless of how your needs have changed, it's important to review your life insurance policy every couple of years to keep up with income, marital and family changes.
Compare the Current & New Policy Benefits
If you do decide to look elsewhere before you say yes to a policy replacement, research your options and carefully compare both policy costs and features. Different products are designed not only for different people but for a variety of situations.
- Read over your old policy and cost breakdown of premiums, cash surrender value and death benefits. Request the same information for the new policy you're considering.
- Ask the financial professional who sold you the current policy for a detailed explanation on why you should keep it. If the representative urges a new policy, ask for an equally explicit argument on why you should switch. Weigh both arguments carefully.
- Consider a financial professional who sells a variety of financial products. A representative offering a variety of products may be better able to provide you with a policy that best suits your individual situation.
- Remember that even if both your present and proposed policies pay dividends, it may be years before the new policy's dividends will equal those under your present policy.
Keep in mind that if you replace one cash value policy with another, the cash value of the new policy may be relatively small for several years. In fact, the cash value of the new policy may never be as large as that of the original.
And finally, remember that nobody knows what will happen in the future. You may need to be ready to adjust your financial plans if your policy's cash value doesn't increase as quickly as shown in the illustration.
The Consequences of Canceling a Life Insurance Policy
It's important to understand and be aware of the consequences of canceling an existing life insurance policy to buy a new one. A few facts include:
- If you're older or your health has changed, premiums for the new policy will often be higher. Additionally, you will not be able to buy a new policy if you're not insurable.
- It may be costly to replace your new policy, as you often encounter up-front costs and fees when you purchase new life insurance.
What Should I Do With My Existing Life Insurance Policy?
If you do decide to replace your life insurance policy, don't cancel it until you've received the new one. You then have a minimum period to review your new policy and decide if it's what you truly want.
These are only a few of the issues that may be involved when it comes to replacing life insurance policies. Whenever you're thinking about replacing a current policy, you should consult a financial professional to help you plan and work through all of your options.