Key Considerations When Replacing Your Life Insurance

If you’re shopping around for a new life insurance policy you are probably comparing the monthly premium amount and coverage options. But life insurance is a little more complex than other types of policies. With cash value, dividends, medical exams and more there are numerous things that should be considered before taking out a new policy.


Have You Had Your Current Life Insurance Policy for More Than Two Years?

Life insurance policies have a two-year contestable period in which the insurance company won’t have to pay out death benefits if they find you provided inaccurate information on the application. Any time you open a new policy the contestable period is reset. If you’re still in your two-year contestable period it’s less of a concern.

How Much Cash Value Have You Built Up?

If you’ve built up a considerable amount of cash value you may be better off with the policy you have. A new policy may take longer to build up cash value and pay out dividends. However, this does depend on how the new policy is set up.

Will a Cash Value Pay Out Significantly Impact Your Taxes?

Whenever you withdraw the cash value of a life insurance policy it is considered income on your taxes. If a new policy requires that you withdraw this could push you into a higher tax bracket. At the very least you would need to plan for paying taxes at your current rate on the money you receive.

How Do the Benefits Compare?

If the benefits and coverage are significantly better switching to a new policy may be a good idea even if you have cash value built up or are past the two-year contestable period. Always weigh the specifics of a new policy against your current one, going beyond the cost of the coverage.

Has Your Health Changed?

A new policy often means a new medical exam. If you are in the same or better shape than when you applied for your current policy then this may work in your favor. If not you need to consider how it could affect the cost and benefits. Check out the medical qualifications of the insurers you’re interested in to make certain you meet them all before applying.

It is against Texas state law for an insurance agent to try to persuade you to switch life insurance policies if they know it could negatively impact your coverage. All agents should provide you with a notice that outlines the considerations listed here along with additional information.

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