Switching your life insurance policy: Everything you need to know for a seamless transition

Jun 07, 2023
By taking the time to evaluate the terms, benefits, and coverage of your life insurance policy, you can gain valuable insights into whether adjustments are necessary to provide financial security. Source: Getty Images.

Retirement can be a time of transition and reassessment, and one aspect that requires careful consideration during this time in your life is your life insurance policy.

As you enter this new phase of life, it’s essential to evaluate whether your existing policy still meets your needs.

As Managing Partner of Elliot Watson Financial Planning, Elliot Watson  points out “protecting yourself is important”.

“Insurance is an important component to any retirement strategy as it helps to ensure that if a sickness or accident occurs the financial loss potentially incurred is covered by a third party,” Watson says.

To ensure you have coverage that aligns with your current circumstances and objectives, Starts at 60 has provided a comprehensive guide regarding what to consider when reviewing your life insurance policy, how to determine if it’s still working for you, and the process involved in making any necessary changes.

Determining whether your policy still meets your needs

By taking the time to evaluate the terms, benefits, and coverage of your life insurance policy, you can gain valuable insights into whether adjustments are necessary to provide financial security for yourself and your loved ones

Associated Concepts Financial adviser Alexander Rankin highlights that “insurance is an ever-changing landscape, with drastic changes having swept through the industry over the past decade.”

“Often a driving factor to reviewing your insurance is a rise in premium and the policy no longer being affordable; if you are finding yourself in this situation, understanding if there are more competitive policies may be worthwhile,” Rankin explains.

The first step in evaluating your life insurance policy is to review the terms, benefits, and coverage it provides.

After reviewing your current life insurance policy, it can be helpful to ask yourself the following questions to determine its suitability in retirement:

  1. Do I still have dependents who rely on my financial support? Consider the financial needs of your loved ones and whether they would face significant hardships if you were to pass away.
  2. Have my financial obligations decreased? Assess whether you have paid off major debts or reduced financial responsibilities, making a lower coverage amount more appropriate.
  3. Do I have sufficient savings and investments? Evaluate your current financial portfolio and determine if you have accumulated enough assets to provide for your loved ones in case of your passing.
  4. Are there any major health changes? Consider whether any significant health changes may affect your life expectancy or insurability. Certain health conditions may warrant additional coverage or policy modifications.
  5. Do I need additional coverage for long-term care? As you age, long-term care may become a significant consideration. Explore options such as long-term care insurance or policy riders that offer relevant coverage.

What you need to know when changing policies?

If you determine that your current life insurance policy no longer aligns with your needs, there are several steps to consider when making changes:

  1. Research and Compare: Research different life insurance policies available in the market to find the best fit for your new circumstances. Compare policy terms, coverage amounts, premiums, and additional benefits.
  2. Consult an Insurance Advisor: Seek guidance from a qualified insurance advisor who can help you navigate the complexities of life insurance policies, understand your options, and find the most cost-effective solution.
  3. Understand Underwriting: If you decide to switch policies, be prepared to undergo a new underwriting process, which may involve a medical examination or the need to disclose any changes in health since your initial policy was issued.
  4. Seamless Transition: Before canceling your existing policy, ensure that your new policy is in place to avoid any coverage gaps. Coordinate the transition with your insurance advisor to minimize disruptions.
  5. Regular Policy Reviews: Even after making changes, remember to review your life insurance policy periodically. Life circumstances can change, and it’s crucial to ensure your coverage remains appropriate as you continue to enjoy your retirement years.

Rankin explains that when choosing a new provider, “ideally, you want to be obtaining a policy with the most favourable features, for the most competitive premium.”

“An insurer’s Product Disclosure Statement (PDS) will outline all the features and benefits offed under their policies. You will need to obtain a quote from each insurer that is specific to you and your circumstances,” Rankins says.

“This can be a daunting task if done manually, qualified Financial Advisers have software that is able to quickly and accurately compare policies from all available insurers, they will then provide you with a recommendation on which policy is best suited to your needs.”

By keeping these considerations in mind, you can make an informed decision and secure a new life insurance policy that offers the appropriate coverage for your retirement years.

Is changing policies later in life worth the effort?

When it comes to life insurance, the idea of changing policies later in life may seem daunting. After all, you’ve already invested time and money into your current coverage. However, taking a closer look at the potential benefits can help you make an informed decision.

Rankin claims that “regularly reviewing your life insurance is part of overall good financial hygiene.”

“This doesn’t necessarily mean changing policies regularly (as this can often be detrimental), but checking in to make sure your policy is still suited to you is a good idea,” Rankin says.

“If you find your policy no longer suits your needs, then looking to change policies may put you in a better position.”

Watson suggests that changing policies later in life can be worth the effort in certain situations. But encourages those making a change to carefully consider the following factors:

  1. Cost savings: If you can find a new policy that offers comparable coverage at a lower premium, switching policies can lead to long-term cost savings. As you age, the premiums of your existing policy may increase, making it worthwhile to explore more affordable options.
  2. Updated coverage: Changing policies allows you to reassess your coverage needs and ensure they align with your current financial situation and goals. You may find that your existing policy no longer provides adequate protection or lacks certain features that are important to you.
  3. Health changes: If your health has improved since you initially purchased your policy, changing policies can potentially result in better terms and lower premiums. Underwriters consider your health status when determining premiums, so improved health may make you eligible for more favorable rates with a new policy.
  4. Enhanced features: Newer policies often come with updated features, riders, and benefits that may better suit your needs. For example, you might want to add long-term care riders or other provisions to address specific concerns during retirement.
  5. Provider changes: If you are dissatisfied with your current insurance provider’s customer service, reputation, or financial stability, switching policies gives you an opportunity to work with a different insurer that better meets your preferences.

While there are several factors that may make changing policies a good move there are still several that make the decision less advantageous that also need to be carefully considered, which include:

  1. Pre-existing conditions: Switching policies may result in a new round of underwriting, and pre-existing health conditions could lead to higher premiums or potential coverage limitations. Evaluate how your health may impact the terms of a new policy.
  2. Time and effort: Changing policies involves completing application forms, providing information, and potentially undergoing medical underwriting. It requires time and effort to navigate the process, so consider if the potential benefits outweigh the administrative burden.
  3. Loss of benefits: If your existing policy has accumulated cash value or offers unique features like guaranteed renewability, switching policies may mean forfeiting these benefits. Evaluate the trade-offs carefully.

In the end, the choice to switch policies in later life hinges upon your unique circumstances and weighing the potential advantages and drawbacks.

Retirement is an opportune time to reevaluate your life insurance policy to ensure it aligns with your current needs and objectives. By assessing your existing coverage, determining its suitability, and considering the process involved in making changes, you can confidently make informed decisions about your life insurance in retirement.

Remember, consulting with an insurance professional can provide invaluable guidance and ensure you have the necessary coverage to protect your loved ones and enjoy peace of mind during your golden years.


IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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