28 June 2012 0 Comments

Replacing Term With Term: Part 1

I’ve provided you with general guidelines when replacing one life insurance policy with another, now for some specific situations.  I’ll start with the easiest: replacing one term insurance policy with another.

Except for one exception (Return of Premium Term) Term Insurance does not build cash values.  It’s pure protection.  So we need not worry about transferring cash values or income tax consequences.  Why would you want to cancel one Term Policy just to get another?  Here are the reasons:

  • Obtain a lower premium
  • Lengthen the duration of the term
  • Shorten the duration of the term
  • Increase death benefit
  • Extend conversion time or options

Obtain a lower premium

If your term policy has reached the end of its original duration and you want to continue with term insurance, you will want to see if you can qualify for a new policy to keep the term premiums from going through the roof.  I covered this in an earlier blog.

Perhaps your current policy is just not competitively priced.  It’s a good idea to review term about every 5 years to see if you can do any better.  Be sure to compare apples-to-apples: face amount, remaining duration of term, convertibility and added coverage, such as Disability Waiver of Premium and Accidental Death Benefit.  If you can do better with a financially strong company, go for it!

If you have had positive changes in health or lifestyle since purchasing your current policy you may be able to improve your premium.  Quitting smoking can save you a bundle.  You will need to be off nicotine products for at least a year before qualifying for a better premium. As time elapses following major illness such as cancer or heart attack, you might be eligible for a better underwriting class.  In these situations, see what your existing company will do to reduce your premium before shopping around.  If their new premium is competitive, stay with them in order to avoid a new suicide exclusion and contest-ability clause.

Lengthen the duration of the term

When you bought your current policy, perhaps you chose a 10 year term.  It might have been because of the low premium, or because you just couldn’t wrap your mind around any time frame beyond 10 years.  Whatever the reason, if you now need a longer duration, you’ll be applying for a new policy and replacing what you have.

Stay tuned, there’s more to come on replacing term with term…

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