How To Switch To A New Life Insurance Company
Should you find yourself in the position where you have a life insurance policy now and would rather be covered by another insurer, here’s what you must do:
- Identify which insurer you want: There are hundreds of life insurance companies. They have differing products, costs, and underwriting. It’s wise to shop around using a quotes calculator to find the best deal. The best way to go about this is to find a reliable (At least an A rating with A.M Best) and experienced independent agent.
- Determine which type of policy you need: There are multiple types of life insurance. Each type works differently and has different costs. In general, there are temporary and permanent life insurance policies. The basic rule is: buy term life insurance to cover a temporary need, and buy whole life or universal life to cover a permanent need.
- Calculate how much coverage you need: Ask yourself the question: What would the insurance money be used for? Then calculate how much life insurance you would need to answer that question. For example, if you only need life insurance to cover your funeral costs, then you’d need roughly $10,000-$20,000 in coverage. If you need to cover a mortgage, you would get coverage roughly equal to your current balance.
- Apply for the new policy: Whether you’re applying directly to the insurance company or via a licensed agent, you’ll have to complete a formal application. Expect to provide all your personal and payment information. Once approved, the insurer will mail you the policy, which will take effect on the date you make the first payment.
It’s critically important that once you receive your new policy, you verify all the details. You must verify the premium, coverage, and all other terms and conditions. If there are any discrepancies, contact the insurance company immediately.
Changing Life Insurance Companies Is A Big Deal, So Take These Considerations Into Account
Canceling a current life insurance policy so that you can buy a new one with another company should not be done without considering all the pros and cons.
Conversion may solve your problem
Nearly all term life insurance policies are convertible, meaning you have the guaranteed right to switch from term to whole life. This conversion cannot be denied for any reason.
If you have term life insurance and would prefer permanent coverage, consider converting first. If possible, this would be the best route to go since conversion is guaranteed.
Change insurance agents if they are the problem
If you don’t like your current life insurance agent, you’re not stuck with them. Moreover, it would be a really bad idea to cancel your policy for this reason.
Understand that you have the right to request a new agent. All you have to do is call the insurance company and request that another agent be assigned to your policy. This new person will be granted the right to assist you in managing your policy once the change is implemented.
No insurance company can force you to keep their coverage
For all types of insurance (not just life insurance), no insurer can force you to keep a policy. It’s always at-will participation. If you want to cancel a policy, you have the right to do so at any time. No insurer can tell you that you must keep it for any period of time.
If you have cash value, you’re going to get some money back
If you have a whole life or universal life policy that has been in force for more than 2 years, it will have cash value. When you cancel, you will receive a cash surrender valueCash Surrender Value
The amount of money refunded to the policyowner upon cancelling (aka "surrendering") the policy. The surrender value is generally equal to the current cash value or very close to it.. To obtain this value, you must call your insurance company and request the current figures.
Alternatively, you can use a 1035 exchange to transfer the existing cash value to the new policy. This would only be necessary if you have a participating whole life policy with cash value that, if withdrawn, would create a tax liability.
There are usually no fees to cancel a policy
First, no term life insurance policies have a surrender fee. Permanent life insurance policies may have a surrender fee, but it’s uncommon. If there is a surrender fee, it’s a very small portion of money deducted from the cash value (it’s not money you have to pay the insurer).
Be prepared for “replacement” insurance questions
Buying a new life insurance policy so that you can cancel an existing one is considered, by every department of insurance, a “replacement” transaction. Replacements require the new insurance company to file specific forms to comply with state replacement rules.
Be prepared because you will be asked and must provide answers to the following questions:
- Do you have any existing life insurance policy?
- Is it your intention to cancel your existing coverage to reduce, modify, or use premiums from your current policy to be applied to the new one?
- What is the name of your current insurer, what type of policy is it, and how much coverage do you have?
You cannot refuse to answer these questions. All insurance companies must ask these questions and provide the appropriate answers to be compliant.
Expect higher premiums than what you’re currently paying
If you have had your current policy for more than a couple of years, you should expect the new policy to be more expensive, primarily because you’re older. Keep in mind, too, that if your health has deteriorated since you bought the first policy, that will likely contribute to higher new premiums.
Finally, if you currently have term life insurance and are switching to permanent coverage, expect a massive increase in cost. Permanent life insurance generally costs 2-20 times more than term life insurance.
- Nationally licensed life insurance agent with over 16 years of experience.
- Personal annual production that puts him in the top .001% out of all life insurance agents in the nation.
Anthony Martin is a nationally licensed insurance expert with over 16 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
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A.M Best. https://www.ambest.com/ratings/guide.pdf?_gl=1*1c1n5sd*_ga*MjA0NjQ2ODI4LjE3MTAzNTIzMjM.*_ga_VNWYD5N5NL*MTcxNTQzNDc5Ny44LjEuMTcxNTQzNDc5Ny4wLjAuMA..
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1035 exchange. https://www.investopedia.com/terms/s/sec1035ex.asp
