If you already have a life insurance policy and you're considering replacement, this article will help you make a decision. To the question of whether you should switch, many people in the life insurance industry have a simple answer: Don't.
They think that a life insurance policy, once purchased, should never be replaced. We do not subscribe to that view. We think replacement-purchasing a new policy and at the same time discontinuing a previously held policy can sometimes make sense. But when an agent or company suggests you switch policies, we think you should be given information about the costs involved. In some states, the replacing company is obliged to meet limited disclosure requirements.
Many industry representatives believe that companies, instead of offering online life insurance rates and selling life insurance to people who are already covered by another company, should concentrate on selling life insurance to people who have no coverage-or at least to people who don't have enough. To do otherwise, it's argued, would mean the sort of internecine competition that only weakens the industry and raises expenses for all companies. Ultimately, the argument goes on, the consumer is harmed, because increased expenses mean higher life insurance rates.
This is not to suggest that switching policies is necessarily desirable from the consumer's viewpoint. Indeed, anyone considering such a move should proceed cautiously. There are at least three reasons why the replacement of one policy by a new one should be carefully weighed.
When you replace one life insurance policy with another, you have to pay a new front-end load, including a commission (if an agent sold you the policy), other sales expenses, and administrative costs. Compare online life insurance quotes from top carriers! The new front-end load may be reflected in higher premiums, delayed dividend payments, and/or delayed buildup of cash value.
If you're reasonably satisfied with your existing policy and its price is fairly close to that of the replacement policy, it's rarely in your interest to pay a second front-end load. For that reason, agents who sell replacement policies are often suspected of pursuing their own interests, and not the consumer's needs.
A second argument against replacements is that the new life insurance rates and policy is likely to have higher premiums because you're older than when the original policy was issued. In the case of cash value policies, this argument makes some sense because the premium stays constant from year to year and is based on age at the time of purchase. In the case of one-year or five-year renewable term policies, it's less clear, since term premiums normally increase with age anyway. However, the premium for an existing term policy at a given age may sometimes be lower than the premium for a newly purchased term policy at that age, particularity if the existing term policy is replaced in the middle of its term.
Third, if you replace your life insurance policy, you lose important protection afforded by the suicide clause and the incontestability clause of the old policy. Essentially, they mean that your beneficiaries may not get the full death benefit if you should commit suicide within two years of purchasing the new policy, or if you should die within two years of purchasing the new policy and the insurance company were to find out that you had made important misstatements in the application for the new policy. Find online life insurance quote in minutes!