Beginning retirement is a big change. Not only is your income changing and your kids finally get on their own, but you begin arranging things for your retirement and perhaps final issues. Our life insurance needs change as our circumstances do. If you’re going to maintain life insurance on yourself but want to alter it, here are some considerations on switching policies for a better deal.
Even if you purchased a term policy several years ago you may want to switch if you can get one that better meets your needs and costs less. Term rates are very competitive and you may be able to get more for less today, even though you may be somewhat older.
But be sure you get the new policy issued to you before you cancel the existing policy. Changes in your health status or stricter underwriting for your new policy can either prevent you from getting that new one or make it more expensive than you planned.
Some issues determining your eligibility and cost for a new policy are shown in the table. Most insurance companies have 3 or 4 health status levels of various names. But a better health status for you means less risk to them. And that means less the cost to you. You’re assigned a level – related to your insurance risk – according to your prime stats and your answers to a set of risk-based factors (see table for examples). So adjust your life-style accordingly.
|Issues Determining Insurance Eligibility And Cost|
|Prime Stats||Health status level||Health status risk factors|
Cardiovascular disease of parents and siblings?
Hazardous activities (sky diving, mountain climbing….)?
|More risks: Diagnosis or Treatment for the following:|
|Cancer, Depression, Sleep apnea, Diabetes, Kidney disease, Liver disease, Mental or Nervous disorder, Alcohol or Drug abuse, and Crohn’s disease|
But remember: Although competitive pricing can present deals to justify replacing your term insurance, eventually you’ll find that your increasing age will offset any competitive savings.
Cash Value Insurance
If you’re considering replacing a cash value policy, be sure to consider both the new and old policies in more detail. Insurance agents are required, by insurance regulators, to document that such a replacement is to your advantage by completing a detailed comparison form.
This form compares the cash values and other features of both in such a way that they can be evaluated accurately. Make sure your insurance agent completes this form and reviews it with you before proceeding.
It’s often not advantageous to replace a cash value policy because cash values tend to build up slowly. By buying a new policy, you’d be starting that slow build up all over again.
Note: The purchase of life insurance involves costs, fees, expenses and potential surrender charges and depends on the health of the applicant. Not all applicants are insurable. If a policy is structured as a modified endowment contract, withdrawals will be subject to tax as ordinary income and withdrawals prior to age 59 ½ are subject to a 10% penalty. Switching life policies may incur surrender charges and the switch from one policy to another will incur a new surrender period on the new policy.
JD Smith, representative, securities offered through Lowell and Company
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