Term insurance is designed to pay out benefits if you pass away during the policy term. Unlike whole life insurance policy, it does not grow cash value, so it is crucial to adjust the terms of the policy based on your life needs and dependents at the time. You may choose to opt for higher coverage earlier in life when your expenses are higher. Later on, you may decide to decrease the term insurance coverage as your expenses drop throughout the years.
Can I reduce coverage of my policy?
There could be restrictions on how often and when can you make changes to your existing term insurance. Some companies allow you to change the coverage amount, and they have time and frequency limits. There might be a minimum face amount required. Hence, it is advisable to do your research and read the policy document carefully in order to make changes to your term insurance policy.
Do I need to take another medical exam to get the coverage amount reduced?
If you wish to reduce the amount of your existing term insurance policy, you probably won't need to take another medical examination. However, some companies may require you to buy a new policy entirely if you wish to reduce the coverage. In such a case, you need to undergo a medical examination and the entire underwriting process again. You will be rated according to your current age, income, health status and other considerations. Depending upon those factors, you will be allocated a new policy.
In some cases, you might find your existing term insurance policy more cost-effective than a new policy with reduced coverage.
What will be the premium for the reduced policy?
For instance, you wish to reduce your term insurance to be cut in exactly half. In such a case, lowering your policy's coverage amount in half won't result in a premium that is half of what you are paying now. The insurance company can give you an exact quote and the premium amount. It is advisable to ask your insurer to calculate it for you.
Before you reduce your policy coverage..
Doing proper research or talking to a qualified, trusted agent would help you to explore and understand your options. As you consider a lower coverage for your term insurance policy, remember that you need to consider all of the expenses that your family will face in your absence. There is a lot to think about and it all adds up. Below is the list of things you should consider before you reduce your term insurance plan.
How much will your family need to pay for your funeral and related expenses?
How many years are left for debt (if any) and how much are the monthly payments?
How much will your family need to cover other living expenses?
How long will your kids be in college, and how much will their college and other education-related costs amount to?
Do you have a home, care or other debt? How much and for how long?
How to decrease term life insurance
Step 1: Understand why term life insurance is important
Step 2: Realise that by reducing the premium amount that you pay, you are also decreasing the payout that your beneficiary receives in the event of your death.
Step 3: Review your existing policy and check for the terms by which you are allowed to reduce your term insurance policy.
Step 4: Determine how much insurance coverage you need to adequately cover your debts and your family’s needs in your absence.
Step 6: Visit the official website of the company or schedule an appointment with your insurance agent to discuss reducing the term insurance.
Step 5: Once you revise your term insurance, keep a copy of the policy with you.
Why should I have term insurance if I can't afford it?
Many people let their insurance policies lapse because they are unable to afford the premiums or they don't feel the need for keeping their insurance policies active. In such a case, it is important to think about why they purchased life insurance in the first place.
You may have opted for a term insurance to let your family lead a comfortable life even during the days when you aren’t around. If you fail to pay the term insurance premiums due to some financial stress, imagine how your family will bear the financial burden post your demise. . Therefore, it is utmost important to examine all the options before simply discontinuing or reducing your insurance policy.
How to reduce your life insurance premium
You may be able to save on premiums on your existing plan by reducing your death benefit or reducing your term length. Most companies will allow one-time reduction of policy face value or reduction of policy term length. Both of these will reduce the premium.
If you have gotten healthier since the inception of your term plan or stopped smoking, all you need to do is first request the insurer to reconsider the health classification, which will potentially lower the premiums.
You can replace your current policy with a new one that has similar benefits for less money.
You can cut down the riders which are added to your term insurance. This means you can retain your life cover and have an affordable premium without any extra burden.
There is an option to sell your insurance policy if you have a tough time to keep up with your premiums. It’s called a life settlement. A life settlement is the sale of insurance plan to a third party in exchange of policy’s cash value, but less than the face value, or death benefit.
Term life insurance provides you with a flexible and cost-effective way to protect your family. So, it is important to consider various aspects and amount of life insurance you will need and for how long you will need it. If you expect that your coverage needs would change over time, find out upfront whether the insurance company will allow you to change the coverage amount, especially if you want to reduce the coverage, and ask about any restrictions and terms that may apply.
Author's Score 2
Up Votes 7
Down Votes 0
Voted on 4 articles
Comments on Can I reduce my term life insurance policy?