Why would you replace one life insurance policy with a new one?
There are some important and ongoing questions when you own life insurance like does the policy meet your needs and Is the policy affordable? These are questions that should both elicit a yes answer when you first buy your life insurance, but that isn’t always true. We’ll get into that down the page. The same questions should be revisited occasionally during the life of the policy. Like all things in life, change can happen. If those yes answers become questionable or change to a definite no, then considering the possibility of replacing that policy with a new one may be something you want to look into.
The life insurance replacement bad rap!
Replacement can be a prudent and wise thing to do and it can also be completely unnecessary. Part of this decision comes with the two questions I asked above and part of this decision comes down to ethical practices of life insurance agents. Unfortunately there are plenty of life insurance agents whose advice to you is tied directly to their desire for a sale, for more income. If an agent recommends a replacement that doesn’t improve the ability to cover your needs while protecting your budget, that just isn’t ethical. You may have to study beyond the sales pitch to find the answer, because your best interests are the only reason to replace a policy.
There are times when I believe the state of New York has gone too far with their replacement regulations, hoping that by making it a cumbersome process for both the agent and clients, it will cut down on unethical replacements. Unfortunately New York’s Department of Financial Services hasn’t caught on to the fact that unethical agents have found ways to beat the regulations for the sake of the sale.
There is an urban myth that you shouldn’t replace your life insurance because the new policy will have a new two year contestable period. That just doesn’t hold water since the only way your policy can be successfully contested is if you don’t tell the truth on your life insurance application.
Should you replace a policy you just bought?
Does that new life insurance policy meet your needs at a price you can afford? If the answer is no then you should ask your agent the old Dave Ramsey shopping mantra, “Is that the best you can do?” This happens most often if you apply expecting to be approved at the rate your agent quoted, but you aren’t for some underwriting reason. If your agent says you won’t be able to do any better because of that “underwriting reason”, it’s time to shop elsewhere. The “reason” you got a higher rate than expected with the company you applied with may very well be looked at much differently (in your favor) with another company.
If you need or want the life insurance in force now and you can afford it, put that higher priced policy in force. If you can’t afford it, ask the agent to change the policy to make it more affordable. That may mean putting a 10 year term in force instead of a 20 or 30 year term. That makes it work with your budget but likely not your long term plans. Start shopping for a replacement right away.
Bottom line. A lot of agents and all of the big on line agencies will refuse your request to start over again and find a better option. Understanding why will help you understand the agent. They don’t get paid until you put something in force so you’re asking them delay their reward for your sake. If you have questions on replacement or are considering a replacement and need a second opinion, call or email me directly. My name is Ed Hinerman and I don’t believe agents deserve to be paid until they have gone the extra mile for you. Let’s talk.