Swapping Old for New: Life Assurance Policy Considerations

For friends, there is a saying,

“Make new friends but keep the old,
One is silver and the other gold.”

Sometimes, the old is better than the new and there are also cases when the reverse is true. But does the above adage apply for life assurance policies? Should one replace an existing policy and get a new one if the new one offers better, more affordable premiums?

Study Before You Swap

Before you make the decision to swap your old policy for a new one, you need to make a careful study of the situation. Here are some considerations:

• Health condition.

  Remember that premiums are based on your health condition. The older you get, the more likely you will be overweight or in poor health. You may have incurred a sickness or have been a victim of an accident. These factors will considerably affect the premium ratings that will be charged to your policy. There may even be instances when you will be denied coverage because of your current health condition.

  If your new policy will be charged with a higher rating, you may be better off sticking with your old one. Also, don’t cancel your current policy before your new policy is issued. You may have higher premiums or be denied coverage. If you go back to your canceled old policy and say that you want to have it reinstated, the insurance company may also look into your current health condition before they agree to the reinstatement. That said, if your health condition is roughly the same, replacing an old life assurance policy for a more affordable one may be in your best interest.

• Additional policy-related costs.

  Remember that issuing a policy has its costs. When you get a new one, you will have to shoulder the new costs which include the agent’s commissions, marketing expenses, underwriting costs and administrative costs.

• Aggressive pricing.

  The new policy may be priced more attractively because the first few years charge a lower premium and then tack on higher premiums in the following years.

• New waiting period.

  When you get a new life assurance policy, you will have a new contestability period (usually two years). Within these two years, the insurance company may dispute claims, especially claims arising from your health condition.

Some reasons for swapping old for new:

• Changing needs.

  You can think about swapping if your old life assurance policy answers a specific need that may not currently exist.

• Availability of longer guaranteed premium periods.

  For term life assurance, premiums may change over the years. If you have the opportunity to get a longer guaranteed premium period, it may be work some consideration.

• Changes in tax laws.

  Current tax breaks may actually make newer policies cheaper. (Check with your accountant or life insurance agent, though.

• Changes in an insurance company’s pricing.

  An insurance company may come up with a new product that is more competitively priced and may offer a better deal.

Your life insurance agent (who is selling you the new policy) has the responsibility of showing you the differences between your old and potentially new policy. The costing analysis should include the old policy’s investment value and puts the new policy’s values at current prices.  This will help you make an informed decision of whether it’s wise to swap or not.

To protect your loved ones for less, fill the form on the right to get your life insurance quote.