Switching life insurance policies
Here’s what you need to know about changing your life insurance policy
When you originally get your life insurance policy, it is based on your financial situation at that time. Over the course of your life, this can change quite dramatically. Therefore, it is worth reviewing your life insurance policy at different intervals to ensure that you are still covered properly. Switching life insurance providers isn’t actually difficult, yet a lot of people are worried that prices will increase. However, getting the right amount of protection for your family is important in maintaining their financial security.
When should you review your life insurance?
When your financial situation or commitments change during your life, it may be time to take a look at your life insurance. As your situation changes, whether it is a mortgage, your family or increased assets or debts, you’ll want enough life insurance to protect your family. After all, that’s what you got it for in the first place.
Mortgage changes and debt
If you’ve taken out a life insurance policy to cover a mortgage, it may be that this will increase at some point. Perhaps you’ve moved to a different, larger property or you wish to remortgage your home. However, it also may be that you’re slowly paying off your mortgage so actually, the amount you wish to cover is less over time.
Essentially, it’s important to cover your debts and mortgage so that your family are protected. Loans and mortgage payments in your name can be called in if you were to pass away. Equally, your partner or spouse may not be able to afford the mortgage payments on one income, which could force them to move. Whatever the changes are, make sure that you’ve got enough protection. That way, your family can adjust without having to suffer financial difficulty.
It may be that you took life insurance out to make sure that the mortgage was covered. You may get married or have children and wish to leave them some money as a security net. Or, you may want to think about switching life insurance providers or policies if you need to add your first child, and then subsequently add any children that then follow after.
In addition to this, you may also want to ensure you have cover to protect any other dependents. This could be anyone such as an elderly parent or a sibling that may need full-time care.
Changes in income
If you have a change in circumstances, for example, your income was to reduce, then you may wish to look at getting a cheaper life insurance policy. In addition to this, it may be that you want to start your own business. In which case, you may need an additional life insurance policy to cover your business. As your career changes, it may be worth looking at switching any life insurance policies both you and a spouse may have. It’s also important to consider the costs of replacing a stay-at-home parent such as childcare and household maintenance too.
Switching your life insurance policy
Switching life insurance isn’t complicated. Often, it’s a very easy process that can be done on the same day. However, there are different things you can do depending on your circumstances. For example, some providers allow you to increase or decrease the level of cover you have. Alternatively, you may wish to change to a different provider and cancel your policy altogether.
Is there a fee for cancelling your policy?
Cancelling a life insurance policy is free of charge. If an insurance provider tries to tell you otherwise, check your terms and conditions. Typically, you should not be charged for cancelling your life insurance policy. It is important that you inform your life insurance provider that you wish to switch. If you just stop paying, they may continue to charge for an existing policy.
What do you need when switching your life insurance?
Switching life insurance policies shouldn’t require too much. Often you may need to know your current policy number and cover level so that you can find the best deal. Often, you’ll need to provide information on your age, health and lifestyle as well as your occupation and smoking status.
Will I need to undergo a medical check?
Whether you are required to undergo a medical check or not will depend on your circumstances. If there are no additional medical declarations and you’re remaining with your current provider, then you are not likely to need a medical check or GP report. If there has been a change in your medical circumstances, then this will need to be declared and you may be required to obtain a GP report or medical examination. In addition to this, if you are asking for a substantially higher amount of cover, then your insurance provider may require a medical check.
When switching life insurance, you may be asked about your general health and lifestyle. However, if you are relatively healthy then your application will be processed quite quickly.
Are there any costs involved in switching life insurance policies?
Cancelling a policy and starting a new one shouldn’t cost you any money. Some insurance providers ask for a fee, however. It is always recommended to compare prices. Look for an insurance brokerage that is fee-free so that they can do this for you and provide you with the best advice. That way, you can make an informed decision in your own time.
It is important to realise that life insurance becomes more expensive the older you are. This can cause your premiums to cost more. Also, if you have any changes in your health this may alter the cost of your life insurance for the same amount of cover. Smokers typically pay around a third more than non-smokers and those with medical disclosures are likely to have exemptions written on their policy.
If you are switching policies, there may be tax consequences. For example, if you are switching from a business policy to a personal one.
Switching from a business policy to a personal policy
If you are changing jobs, you may wish to change your employer-provided life insurance policy to a personal one. In this case, you may lose the tax advantages that you would receive from a relevant life policy or a key man policy.
Most providers will allow you to switch a policy so that you pay for it out of your own pocket. Whilst the premiums may be more expensive due to the tax changes, it is possible to switch the policy without the need to go through underwriting again.
Can I just get additional cover?
It is also possible that you may be able to take out an additional policy to top up the level of cover. You can take out another policy with a different provider to obtain the new level of cover you wish to receive. This could be beneficial if you’ve already set up a policy and your life circumstances change. For example, you’ll need a new medical check, or you have another child.
In this instance, completely switching your life insurance policy could cost you a lot more. So, it may be a cheaper option to take out an additional policy instead.
Changing your beneficiaries
When you set up your life insurance policy, you can choose who you would like to receive the money from the payout. This is because your policy can be set up in a trust which can help to ensure they receive the money smoothly and efficiently.
If you’ve set up your life insurance in a discretionary trust you can add and remove beneficiaries over the course of the policy. However, if you’ve not done this, a non-discretionary trust may have been set up. It is not possible in this instance to change your beneficiaries. Therefore, it may be worth setting up a new policy if you want to add new children on as beneficiaries.
If you’re not sure how your trust was set up, you can check your trust documents and terms and conditions. Alternatively, it may be useful to contact your provider or an insurance broker to find out your options. Sometimes, you may need to switch life insurance policies or providers to cover new beneficiaries.
Overcoming inheritance tax
One of the benefits of setting up your policy in a trust is that your family receive a tax-free payout. In addition to this, if your circumstances change and you have a substantial pension, your life insurance policy is not included in your annual or lifetime pension allowance.
Therefore, if you find that your assets and pension have significantly increased, you may want to look at renewing your life insurance policy. Alternatively, you can top it up with a new policy that is written into a trust.
Comparing your options
If you’re thinking about changing your life insurance policy, then probably the first step you should take is to contact your current provider to see what your options are. They are likely, however, to try and get you to stay with them. Therefore, it may be best to approach an insurance broker. They can provide free advice and guide you in the right direction.
It’s always best to hunt around and compare quotes when switching life insurance policies. It may be that you’re already receiving the best price, so it is worth putting in the time. An insurance broker can do this for you. Thinking of switching life insurance providers? Get a quote with us today.