Should I Switch Life Insurance Providers?

When planning for your future, a life insurance policy plays a vital role in providing security for you and your loved ones. However, as time passes, you may wonder if it’s time to re-evaluate your coverage. While it’s tempting to explore options that promise lower premiums or broader benefits, switching life insurance providers isn’t always straightforward. Here are five essential factors to consider before making a change.

1. A New Medical Exam

When you apply for a new life insurance policy, a medical exam is typically required. Unfortunately, you can’t carry over the results from your existing policy. Instead, the new insurer will assess your current health, factoring in any new medical conditions. If your health has declined since your last policy was issued, you may face higher premiums—or, in some cases, be deemed uninsurable.

2. A Reset Contestability Period

Switching providers resets the two-year contestability period on your policy. During this time, if you pass away, the insurer has the right to investigate your application for inaccuracies or omissions before paying out a claim. If they find discrepancies—such as misrepresented health information—they may adjust the benefits or deny the claim entirely.

Additionally, most policies include a suicide contestability period. If the policyholder passes away due to suicide within the first two years of coverage, the insurer typically refunds only the premiums paid rather than providing the full death benefit. Switching to a new policy resets this period as well, so it’s important to consider how these provisions could impact your beneficiaries.

3. Paying Upfront Fees Again

When purchasing a new policy, you’ll likely encounter upfront fees such as administrative charges. These costs can add up, particularly if your original policy has already recouped its initial expenses. Before switching, weigh whether the benefits of a new policy outweigh these recurring costs.

4. Potential Tax Implications

A change in your life insurance policy could trigger unexpected tax consequences. For example:

• Policy ownership transfers: If you transfer ownership of your policy to another party and name a third person as the beneficiary, the IRS may treat the death benefit as a taxable gift.
• Surrendering or selling your policy: If you decide to cash out your existing policy, any gains above the policy’s cost basis may be subject to income tax.

Consult with a financial advisor or tax professional to understand how switching policies could impact your tax situation.

5. Options for Policy Conversion

Instead of switching providers entirely, explore whether your current policy can be converted, supplemented, or replaced. Many insurers offer flexible options such as converting a term policy to permanent coverage or adding riders to enhance your existing benefits. These changes often allow you to avoid the need for a new medical exam or a reset contestability period.

Take the Time to Decide

Switching life insurance providers is a significant decision that should align with your financial goals and long-term needs. Take the time to evaluate potential providers’ expertise, security, and reputation for stability. Remember, your current insurer may already offer solutions tailored to your evolving circumstances.

If you’re ready to explore your options, our team can help guide you toward the right choice, ensuring your coverage works for you—now and in the future. Contact us today to learn more.