When you conduct a review of your life insurance, you may find that there is no need for change. On the other hand, your financial situation may have changed so much that your current policy isn’t suitable for you anymore. If this is the case, you’ll have to make some adjustments to the policy. As a last resort, you can replace your policy. This should only be done if there is nothing that can be changed in the current policy to make it fit your needs. Here are some of the common changes that you can make to your policy.
Types of life insurance policy changes
Increase or decrease coverage: With the guaranteed insurability rider, you can increase your coverage without evidence of insurability. Even if your health has declined and you would be rated for a new policy, the rider allows you to pay for the additional coverage based on the health class of the original policy. Although premiums will be based on your age when you exercise the option, at least you won’t have to worry about being rated or declined.
With a decrease of the face amount, the main advantage is that premium also decreases proportionally. It’s an easy way to save money if you find that you no longer need as much coverage. For example, when you pay off your mortgage. Each insurance company has minimum coverage that must be maintained and this number varies widely. For example, the lowest face amount that Industrial Alliance will cover on their term policies is $10,000, while the minimum for a Sun Life term policy is $250,000.
Reconsideration of rating or exclusion: If you were issued a life insurance policy with a rating or a disability insurance policy with an exclusion and your health has improved, you can apply to have the insurance company reconsider your case. You’ll have to undergo medical underwriting such as a blood test, and the underwriter will reassess your risk based on the results.
Similarly, if you’ve ceased smoking for a period of 12 months, you can change to non-smoker rates after submitting a urine sample. Premiums for smokers are distinctly higher than non-smokers, and switching to non-smoker rates can save you thousands over the life of the policy. If you qualify, don’t wait any longer to make this change!
Exercise options or riders: Riders are options attached to your policy that augment your coverage. The guaranteed insurability rider was described above, but there are other riders that require your action. For example, the return of premium rider with a critical illness policy can be exercised to refund your premiums if you haven’t made a claim yet.
Although not a rider, conversion of a term to permanent policy also requires action on your part. It may be prudent to convert a portion of your term policy into permanent protection if you’ve developed health issues that would prevent you from qualifying for a brand new policy. Permanent life insurance will be in force long after a term policy expires, and play an important role in estate planning.
Add or remove rider: Some riders must be bought at the same time as when the policy was first issued, while others can be added later. Take child term insurance, for example. A newlywed couple will not have any need for a child term policy but will still have life insurance coverage. After the birth of their first born, they can add the child term insurance rider to their existing policy to cover burial costs.
Removing a rider may also come in handy. For example, if you had a disability waiver of premium rider, which waives your premium if you become disabled, you can drop it if you are covered under a group or individual disability plan.
Permanent life insurance policy changes: Dividends are paid to holders of participating whole life insurance policies. You can change the dividend option, such as from having it paid out in cash to using it to purchase more coverage. With universal life policies, the cost of insurance can also be changed from yearly renewable term to level cost of insurance or vice versa. Another change you can make with a permanent policy is using the cash value accumulated within the policy to pay the premium so that you can take a ‘premium holiday’.
Reinstatement: Policies that have lapsed due to non-payment can be reinstated, provided you are able to qualify at the same rates. This is handy if have forgotten to pay the premium or changed your mind about cancelling the policy. Keep in mind you’ll have to pay back all the premiums missed during the lapsed period plus interest and provide medical evidence of good health.
Change beneficiary or owner: Lastly, you can change the beneficiary or owner of the policy. Reasons for changing beneficiary include but are not limited to: divorce, charitable giving and birth of a child. Ownership of a policy can be passed down from parent to child, when the child reaches adulthood and signifies that he is prepared for the responsibility.
All that is needed to make most of the changes mentioned in this post is a form from the insurance company. Some have additional underwriting requirements, such as the reinstatement of a policy or reconsideration of a rating or exclusion. Nevertheless, it’s sensible to review your policies for change once every few years or when a major life event occurs. You never know when the day will come when it’s too late to make these changes.
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