Life insurance policies provide financial protection and peace of mind to your loved ones. Most policies last for a specific period of time, like 5, 10, or 20 years. During your lifetime, you may need to renew your life insurance policy at least once.
Before renewing a life insurance policy, it's essential to ask yourself some questions to make sure you're making the right decision. Seniors, especially, may experience changes in health or financial status. These changes may impact your policy. Here are 10 key questions to consider when renewing a life insurance policy.
Do I still need the same amount of coverage?
When you first set up your policy, you probably needed a higher life insurance policy to support your family. But as a senior, do you have the same needs? You may have also had significant life changes, like marriage, divorce, death of a loved one, or change in health status.
Asses whether the coverage amount is still enough or maybe too much to cover your current financial obligations. Take into account mortgage payments, debts, and other expenses. If your health has declined, it may be more beneficial to stick with your current policy than applying for a new one. New policies often require a medical exam during the application process.
If you decide that you no longer need a high-value plan, you don't necessarily have to switch to a different policy. Many companies allow a one-time decrease in the value of your policy.
Is this type of plan right for me?
There are 3 main types of life insurance plans: term, whole (or permanent), and guaranteed universal life insurance. There are pros and cons to each type of insurance policy. Depending on your life circumstances, you may want to switch to a different life insurance option.
- Term life insurance guarantees coverage for 10, 20, or 30 years. When you renew at the end of your terms, your rate goes up. Life insurance companies may limit the terms for seniors to shorter time periods. And they may place higher premiums on plans as you get older.
- Whole (or permanent) life insurance covers you for your entire life. These plans have steady premiums but are the most expensive and complex. Some types of permanent life insurance can include investment attachments that grow the policy payout. They may have a cash value component that can be borrowed against or withdrawn.
- Guaranteed universal life insurance covers you until a specific age. The premium payments also remain steady. It is generally less expensive than permanent life insurance because the policy payout does not increase over time.
Consider whether your type of policy still aligns with your long-term financial goals and plans fr your estate. Also remember that seniors are at risk for rate hikes. So, review all your options with your financial advisor. Don't be afraid to shop around to other providers to find the best life insurance policy offers.
Are there riders or new policy features available?
If you have a permanent policy, then you may have access to the payout before you die. Living benefit riders use your benefits to pay medical bills for a terminal illness or other personal care expenses. Using living benefits rider or other optional riders decreases the amount of your final payout. However, they can help ease the financial burden on you and your family if serious health issues arise.
When renewing a policy, review other features and riders that may suit your needs. Insurance products evolve, and there may be new options available that could enhance your coverage or provide additional benefits.
Is this policy convertible?
Some short-term life insurance policies are convertible. So, if you outlive the term-limit on the policy, you can convert it to a permanent or guaranteed life insurance policy near the end of your term. This type of plan may be more expensive, but it should prevent a significant rate hike at the end of your term.
Can you afford the premiums?
Evaluate whether the premiums still fit within your budget, especially if there has been a change in your financial situation. You can also ask about discounts. Many life insurance companies have discounts. However, they may not openly offer them unless you find them or ask your agent outright about the discounts.
Is the insurance company still financially stable?
All insurance companies should have an independent financial strength rating, which evaluates performance, investments, market position, and more. The rating us usually a letter grade. Review the financial strength ratings of the insurer to ensure they are capable of fulfilling their obligations in the future.
What is the surrender value of the policy?
When you end a life insurance policy, you may be able to receive cash value from the insurance company. This is the surrender value. If you're considering cancelling a policy, understanding its cash value can help you make an informed decision.
You may incur fees for cancelling. But surrendering a policy can be a great option if the cost is too high or you can get better coverage elsewhere.
The Bottom Line
As you consider renewing a policy, shop around to different providers. Insurance companies know that it's a hassle to switch providers, so they feel comfortable raising life insurance rates. If you threaten to switch or even do switch providers, you are likely to get a better rate on your insurance.
Another good option is to talk with a life insurance agent or financial advisor. Agents can help you make sense of life insurance options. And a financial planner can help you decide what plan is best for you and your family financially. You may even find out that life insurance is not the right option for you.
