There can be many reasons why you may be considering terminating or replacing your life insurance policy. Before you do, here are a few things that you should consider:
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If you decide to replace your life insurance policy, don't terminate the old one until you have received and accepted your new policy — Most people are unaware that you're allowed a “free look” provision, which is a period of time immediately following the issuance of a life insurance policy, during which you may terminate your policy with a full refund. The free look period differs depending on the terms of your life insurance contract or the laws in your state, but is typically between 10 and 30 days. So if during this time you change your mind about your new policy, you can terminate it knowing that your old policy is still in effect.
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If you feel that your current policy no longer meets your needs, you may not have to replace it — Maybe you determine that your life insurance policy death benefit isn't enough. Whatever the reason, you may decide at some time that you need a policy upgrade. The fact is, you may be able to change your policy or add to it to get the coverage and/or benefits that you now want.
- Depending on your current age and health, consider the likelihood of paying higher premiums for the new policy —Because insurance premiums are rated in part on age and health, terminating your policy and applying for new coverage could mean you may pay more for the same coverage in the future. Moreover, if your health has significantly changed, you may be uninsurable and unable to get coverage.
Options for increasing your coverage as needs change
If you have an existing individual life policy, check to see if you have any type of options for increasing your coverage. Some policies have additional purchase options (guaranteed insurability riders) that may allow you to purchase additional life insurance at a later date without having to prove your insurability. However, these purchase options generally can only be made at specified times or for certain life events such as a marriage, or the birth or adoption of a child. Another possible option may be for you to add a term insurance rider to a whole life or universal life policy. This optional rider can provide a fixed amount of term insurance for a specified period of time. If you have a temporary need for additional life insurance above the current face value of your existing policy, this might be a good solution for you.
However, it’s important to note that many riders and endorsements can only be added onto a life insurance policy at the time that it is written. Therefore, if you think you may need additional coverage in the future, be sure to determine which riders are only available at the time of purchase and do so within your free-look period.
Deciding whether or not you no longer need coverage or trying to trim your budget by terminating your existing policy may not be in your best interest in the long run. Before you replace or terminate coverage, take time to consider all of your options. In all cases, check with your insurance agent or life insurance company before making any significant changes concerning your existing life insurance policy.
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