Replacing your life insurance policy is generally not a good idea for several reasons:
The suicide clause states no proceeds will be paid if the insured commits suicide within two years of the date of issue. If you replace your policy, you are subject to new incontestability and suicide periods.
When should you consider switching your policy? If the new policy's benefits outweigh keeping the old policy. Here are some situations when it might be worthwhile:
If you're considering replacing your policy, make sure you do all of the following:
Does It Make Sense to Switch?
Old Policy You Will Be Switching From:
New Policy Types and Considerations:
Term
Whole-Life
Universal Life (UL)
Variable Universal Life
If your policy is several years old and/or you need more insurance
Rates today are lower; it pays to have one policy
Only if you have enough money after funding your retirement plans
If you plan on keeping it more than 15 years
You want a level premium for life
You need insurance during retirement
You need insurance during retirement, or
You plan on keeping the same death benefit more than 20 years
You're willing to pay more to have a level premium, and
The cash value can be used to keep the premiums low
Your life insurance needs are minimal or
You are using it to supplement your basic insurance needs
You have fully funded your retirement plans
You believe that you need permanent insurance
You're willing to assume investment risk and a variable death benefit
You are committed to holding on to the policy for at least 20 years
If you need substantially more insurance
If the policy is several years old, consider using the dividends to reduce the premium and buy additional term insurance
You have an old whole life policy with high premiums
Consider a combined whole/term life policy
You want a lower level premium
You want flexibility to skip contributions
Your policy is old, dividends are small, and increases in cash value are minimal
You're more than 20 years from retirement
You're fully funding your retirement plans
You're willing to accept investment risk
You have enough term insurance and a whole life policy that you're planning on keeping in retirement, consider switching the whole life for a variable policy
You need more insurance
You can't afford to keep it and buy more term
You're not planning on needing insurance during retirement
You want guaranteed level premiums
CAUTION: Don't switch to another universal life policy just because the interest rate is higher; companies offer different interest rates depending on the internal expenses of the contract, e.g., some states apply premium taxes
You're willing to accept more investment risk
You have enough term insurance and a UL policy for retirement, consider switching the UL for a variable policy
Variable Life
You only plan to hold on to it a few years
You want a guaranteed premium and a guaranteed death benefit
You have a low risk tolerance
You want to reduce your investment risk
You prefer a fixed rate of return that is marked to current interest rates
Your sub account (investment) choices are limited
The funds are performing poorly
What If You Can No Longer Afford to Pay Your Premiums?
If you're having trouble paying your life insurance premiums, discuss the following options with your insurance agent to help you make the best decision.
If you have term insurance, try to find a similar policy with lower premiums. If you have a policy that is more than a few years old, compare your existing policy to what's available on the market today.
If you have a traditional form of permanent life insurance such as whole life, you have certain non forfeiture provisions that prevent you from losing your cash value and/or death benefit. You have three options: 1) surrender your policy and receive the cash value 2) use your cash value to buy extended term insurance, or 3) convert your policy to a reduced paid-up policy. Your policy contains a table of guaranteed non forfeiture values.
If you've had a universal life or variable universal life policy for several years and the interest rate has well exceeded the guaranteed interest rate, or the sub accounts have performed well, you may be able to pay the minimum premium or skip a scheduled contribution and keep the policy in-force for a period of time until you can resume your regularly scheduled contributions. You may even have sufficient cash value to keep the policy in force without putting in any more money. Have your agent run an in-force ledger to determine how well your policy will hold up without future premium payments under current rates. If 1) the policy is going to lapse sooner than you'd like 2) you don't think that you'll be able to resume normal payments, or 3) you don't want to reduce the death benefit, then you should consider purchasing term insurance.
SUGGESTION: Discuss your options with your life insurance agent. Speak to another agent and get a second opinion. You can also contact some of the insurance services mentioned in this Learning Center. Don't drop your coverage until you get enough facts to make a well-informed decision.
Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC. Insurance products are offered through LPL or its licensed affiliates. Premier America Credit Union and Premier America Investment & Retirement Services are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Premier America Investment & Retirement Services, and may also be employees of Premier America Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of Premier America Credit Union or Premier America Investment & Retirement Services. CA Insurance License #0759204, TX Insurance License#1643255.
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