Does it make sense to replace a life insurance policy?
If you already own an insurance policy, you should think twice before you replace it. Why? In many situations, it may not be to your advantage to do so.
When it comes to the question of dropping an in-force policy, there are many factors you need to consider:
• If your health status has changed over the years, you may no longer be insurable at standard rates.
• Your present policy usually will have a lower premium rate than is required on a new policy of the same type (if for no other reason than you have grown older). You will have paid acquisition costs on two policies, although you will end up owning only one.
• 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.
• 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 new policy's cash value may never be as large as the originals.
• You may be required to wait one or two years before the new policy passes though the "contestable" period. During this time, the insurer may cancel the contract or refuse to pay a claim if you made any mistaken or untrue statements on your application.
Before you say "yes" to a policy swap, investigate your options carefully and compare both policy costs and features. Different products are designed, not only for different people, but for different situations.
Make sure you:
Read over your old policy and ask your agent for a detailed cost breakdown of premiums, cash surrender value and death benefits. Request the same information for the new policy you are considering. Compare the two.
Ask the agent who sold you the policy for a detailed explanation of why you should keep it. Ask the agent who is urging you to purchase a new policy for an equally explicit argument for why you should switch. Weigh both arguments carefully.
A career agent offering a variety of products will be able to provide you with a policy that best suits your individual situation. Look for an agent with special professional qualifications. The agent who can best serve you will have specialized education and training in life insurance, financial planning and other related subjects.
If you decide to surrender or reduce the value of the policy you now own and replace it with other insurance, be sure:
• to insist that the agent making the proposal put it in writing
• that you pass any required medical examination
• that your new policy is in force before you cancel the old one
Remember, in considering a policy switch or in making any life insurance purchase, look for an experienced agent, who is licensed to sell insurance and has specialized education and training in life insurance, financial planning and other related subjects. An agent with these credentials will best serve you.