Switching Life Insurance Companies: How and When to Change
Introduction
Life insurance policies are designed to cover you for years and sometimes decades. But over that time, your circumstances can
change, and you might need to change your insurance to match. Sometimes, you can make these changes with your existing
insurer, but other times, it’s easier to switch to another company altogether.
Insurance transfers are rare, so switching companies really means you’ll be cancelling your old policy and starting a new
one. Though it’s not hard to do, there are a few things you should consider before making the change. We
will explain what you need to look out for so that you can make an informed choice on how best to keep your family protected.
Why do people change their life insurance policies?
There are many things that can prompt people to change their life insurance policies. Here are a few of the main reasons:
Reaching the end of term
If you have term life insurance, it eventually expires. For many people, this is the perfect time to shop around
and find the best deals on a new term life insurance policy or even to switch to a whole life policy.
Change in circumstances
Certain life events can change your financial responsibilities, for example, getting married, taking out a mortgage, or having a child.
If you pass away, your family will likely need extra financial assistance, so you may need to increase your life insurance.
Your existing insurer may let you increase the benefits on your policy. Or you may choose to cancel your coverage
and take out a new policy either with your existing insurer or with another company that’s offering you a better deal.
Financial reasons
If you’re struggling to make ends meet, paying insurance premiums can be a strain. Some insurers have financial hardship
measures in place that let you put your policy on hold for a few months, or let you defer paying
your premiums for a while. However, these measures are temporary, and not all insurers offer them. Many people in financial
hardship try to reduce their insured amount to make their premiums cheaper, but this can leave them underinsured. When they
are financially stable again, they will likely need to complete medical checks to apply for a higher level of coverage
again. Rather than reducing your policy, you may be able to find a cheaper policy with a different insurer that fits your budget.
Can you change life insurance companies?
You can change insurance companies whenever you like. However, there are a couple of potential downsides to making the switch
which you should be aware of:
Surrender fees
Your old insurer may charge you a surrender fee if you have a whole life policy. You can think of
the surrender fee as a cancellation cost.
Contestable period
The contestable period is similar to a waiting period during which certain causes of death are not covered. For example,
the insurer may not cover death by suicide within the first year of a new policy.
Has your health changed since you last took out life insurance or mortgage protection?
In general, the older you are when you start a new life insurance policy, the more expensive your premium will be.
This is because older people are more susceptible to illnesses, and so they are more expensive to insure. You may
find that your existing policy, which you signed up for when you were younger, works out to be cheaper than
starting a new policy now.
The other thing to note is that insurers decide how expensive your premiums will be based on your health at
the time the policy starts. They do not keep tabs on your health after that. So, if you were healthy
when you bought your old insurance policy and you develop a severe illness a few years later, your existing premiums
won’t be affected. However, if you start a new policy after you’ve been diagnosed, the new insurer will take
your medical condition into account when they set the new premium, and it’s likely to be a lot more expensive than your old one.
In short, if you’ve developed an illness since you last took out insurance, it may be very expensive to switch to another policy.
How do you go about switching life insurance?
When you are looking for quotes for a new life insurance policy, the new insurer will ask you some specific
questions about your existing policy. They will want to know who your current insurer is, when your policy is set
to expire, and your current policy number. They will also ask if you plan to replace your old policy with a new one.
Though these questions can seem invasive, they are commonly asked across the industry. They allow insurers to weed out fraudulent
brokers who keep changing their clients’ insurance policies to get more commissions.
Checklist to compare costs
We’ve already discussed surrender costs and insurance loadings, but there may also be other expenses when you switch insurers. Here are some of the things to look out for and the questions you should be asking:
- Start-up costs − Do you have to pay a fee to sign up for the new policy?
- Tax advantages/disadvantages − Are there any tax implications to changing insurance policies?
- Features of the new policy − Does it have everything you need?
- The fine print − What are the conditions and exclusions in the new policy, and how do they differ from your old policy?
What else should I consider before switching?
In recent years, dozens of new insurers have popped up online. They offer a range of products and some great deals, but it’s important that you do your homework before signing with them.
Always check to make sure the company is licensed to sell insurance in your region. Your state or country’s financial regulator will usually have the company registered on their website.
You may also want to look for reviews from other customers to find out how good the insurer’s customer service is and how simple it is to make a claim with them.
The bottom line
Changing life insurance is not difficult to do, but it’s important that you do some research and understand the implications of making the change. If you’re still not sure about switching, consult with a life insurance broker who can help you with the details and the numbers.
Having the right policy can make a huge difference for your family after you’re gone, so it’s worth taking the time to find the best insurance cover out there.