As you approach retirement, your life circumstance is geared to change. Because your life insurance needs depend on your circumstance, it’s geared to change too. So switching life insurance polices becomes a consideration. But here’s what to keep in mind.
Your insurance needs change as you move into retirement. That’s because the kids have left the house and no longer need to rely on your help; your working income usually drops down to your retirement income, and you begin considering your estate planning and final arrangements.
You may find you have no need for life insurance or you think you need a different type of policy better adapted to your retirement concerns. If you’ve maintained a life insurance policy on yourself but now want to change it, here are some considerations on switching policies for a better deal.
When switching policies, always be sure you get the new policy issued to you before you cancel an existing policy. That’s because 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 thought it would be.
Be aware of the issues determining your life insurance eligibility and the cost for a new policy. The longer you’re expected to live – according to the insurance company’s evaluation of you – the longer they can statistically wait to pay your policy’s benefit. That’s good for the company since they collect more premiums from you and hold your money longer to earn more for the company. Living longer makes you a good (lower) risk to them.
Most insurance companies will put you into one of 3 or 4 health status levels of various names to characterize your risk to them. The better is your health status, the longer you’re expected to live and the less risk you pose to the company. And that means less the cost to you in terms of premiums.
You’re assigned a health status level is related to your assessed insurance risk. The four health status levels are typically called:
1. Preferred Plus (the least risk to the company and healthiest status for you
3. Standard Plus
Each of these levels is determined by what are called your ‘prime stats’ based upon your answers to a set of risk-based factors. These prime stats are your age, sex, height, weight, and your smoking habits.
Other health status risk factors that influence how you’re place include your blood pressure, cholesterol level, cardiovascular disease of parents and siblings and any hazardous activities you participate in – like sky diving.
Additional risk factors include your treatment for cancer, depression, sleep apnea, diabetes, kidney disease, liver disease, mental or nervous disorder, alcohol or drug abuse, and Crohn’s disease.
It pays in reduced premiums to keep yourself in shape and maintain good treatment of any disease you may have or are prone to. So adjust your life-style accordingly for the sake of your life insurance eligibility.
*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 changing your policy.
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.
*The Term Insurance Option:
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 or costs less. Term rates are very competitive and you may be able to get more for less today, despite that fact of being somewhat older.
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.
Shane Flait helps you with your financial legal, tax, and retirement goals.
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