Why Discontinue Your Life Insurance Policy to Purchase Another? Tony Steuer, noted life insurance author, points out several situations and issues that favor life insurance replacement.
To put it simply, life insurance replacements means discontinuing one life insurance policy to purchase another one. Reasons for insurance replacement vary from person-to-person; there is no one-sizes-fits-all reasoning behind replacement.
Since life insurance is a complex financial asset, it is advised to monitor your policy on a regular basis.
When thinking of replacing your life insurance policy, consider the following issues.
Has the insured’s insurability and/or health improved since the policy was first issued? If the existing policy was first issued in a substandard rating class (i.e., with an extra premium charge), will the company remove or replace the rating?
If the insured person was formerly a smoker but is now a non-smoker, will the current company change the premium to a non-smoker rate?
If the current company will not assist the policy owner in these two circumstances, insurance replacement might be in their favor.
What is the current company’s financial condition compared to the proposed company? Has either company’s financial conditional significantly deteriorated?
A justified replacement may be needed in order to rectify an unjustified replacement.
Policy ownership may also trigger replacement. For example, if an ex-spouse or business partner claims partial or full ownership, a replacement might be indicated.
The current policy may no longer suit your current life insurance needs. The policy may be an old non-participating policy (i.e., it does not pay dividends), which has not been updated by the company to give you the benefit of potentially more favorable current interest and mortality experience.
Before making any decisions regarding insurance replacement, contact your life adviser and insurance company. Discuss your current issues and concern with them. As companies continually enhance their policies, they recognize that their policies may become obsolete and will consider upgrades or exchange programs.
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Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit https://tonysteuer.com/ to join the GET READY! Financial Preparedness Club and access free resources.