What are the advantages and disadvantages of replacing an existing life insurance policy?
Some of the possible advantages:
- Overall Cost - If the new life insurance policy will cost you substantially less than your existing policy, it may make sense to replace the existing policy. Possibly the premium for the new coverage could also have greater cash value potential.
- Flexibility - A new life insurance policy could possibly be better suited to your cash flow.
- Existing loans - if you have an older cash value permanent life insurance policy that you have stripped bare, it may make more sense to replace the existing policy with a new life insurance policy. (However be aware you may create a tax liability consequence.)
- If you have a term life insurance policy and the original term will expire before you are ready to go without coverage, you may want a new life insurance policy to extend the coverage. That is, if your existing term life insurance policy can’t be converted or it is too expensive for your budget to do so.
- You may want to simply increase the value of your death benefit. Keep in mind you can still keep your existing policy and add a new life insurance policy, rather that replacing your existing policy, if you so desire and it makes financial sense.
Some of the possible disadvantages:
- If you have had a cash value permanent life insurance policy for more that 3 years, you probably have already gotten most of the upfront costs out of the way and your cash value will start to accumulate value. Since you pay most of the fees and costs of a new life insurance policy upfront.
- Generally the older you get, the higher the cost of life insurance. However there may be some exceptions to that rule. For example, if you were in poor health and/or a tobacco user and now you are in good health and quit using tobacco for quite some time, you may qualify for better classification, meaning lower premiums. Plus there are other factors that could affect the premiums. So it is worth checking out, since I’ll generate life insurance quotes for free with no obligation.
- Another thing to keep in mind when replacing a life insurance policy is the fact that you will be subject to new incontestability and suicide periods with your new coverage.
- Consider any tax consequences of dropping your existing life insurance policy before committing to a new life insurance policy.
- Be sure to check the new policy to determine if you will be insurable under the same conditions as your existing policy, based on your age and health.
- Check to see if you have a surrender charge on your existing policy. If so, how much?
- Possible loss of features of your existing policy, such as riders that aren’t available with the new policy you are considering, etc., are worth checking out in advance.
Some very important things to remember if you do decide to replace your existing policy:
- Never cancel your old life insurance policy before the new life insurance policy is in force! Otherwise you will have a lapse in coverage!
- Make sure you fully understand your new policy and any advantages/disadvantages that go along with it.
- Check to see if your existing life insurance policy can be modified or converted first, before just replacing.
- Be aware of illustrations that show high level interest rates. Just because they are shown in an illustration, it doesn’t mean you will actually get that high interest every year.
- If you are considering purchasing Universal Life insurance, ask for a “Guaranteed" Universal Life Policy. (GUL)
Note: Life Insurance information can be confusing to many people. As an "independent licensed agent" I can explain things to you in simple terms so you feel comfortable making a decision. Then I can help you choose a life insurance policy, from many choices of different insurance companies, that you feel fits your needs. Plus if you choose to work with me you will have personalized service by a local agent that can shop premium quotes for you. If you would like my assistance to discuss and/or start the process of getting you insured please call me at 941-404-5334.
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