While selecting the type and amount of life insurance you want, you have a lot of flexibility. But once you’re approved and get coverage, your options are limited.
Getting additional coverage
Increasing coverage is a lot like buying new insurance. You normally go through an approval process that looks at your health, finances, and activities. Since criteria change, you may not qualify. And since you’re now older, you’ll pay more.
Some permanent plans offer a guaranteed issue option, which allows you to buy more insurance later regardless of your health. This option has a cost. Also, there are often:
- Restrictions on the amount of an increase;
- Restrictions on when increases become available; and
- A maximum age beyond which increases aren’t allowed.
If you think you’ll need more life insurance later, consider buying more now if you can. You’ll benefit from being younger and also have more protection today.
If you buy universal life insurance, you can select a death benefit that pays the “face plus fund,” which means the face amount plus the savings that accumulate in your policy when you deposit more than the minimum premium. These savings act as protection against inflation.
Decreasing your coverage is easy. All you have to do is complete a form you can get directly from your insurance company or through your advisor. The potential complication is if you decide you want to increase your coverage later.
Why would you want less life insurance? Your needs for estate creation may drop because you paid off your mortgage or because your children are independent. However, you may benefit from permanent life insurance for estate planning, which can include donating your death benefit to a charity.
If you’re reducing your protection because of the cost, you may have other options. Temporary life insurance plans often have large premium hikes at each renewal (for example, every 10 years with term 10). If you’re healthy, you can often save by buying new insurance instead of renewing. Whatever you do, don’t cancel your current coverage until you have new insurance in place.
Permanent plans like whole life and some universal life insurance have mortality charges, which increase every year (called yearly renewable term or YRT). If you think that affordability will become a problem, you can get a guaranteed level cost of insurance with term 100 or some universal life plans.
Life doesn’t always unfold exactly as you planned so keep in mind that you may need to make changes to your life insurance in the future.
- Are Your Life Insurance Premiums Guaranteed?
- Whole Life vs. Universal Life Insurance
- What Happens When You Miss a Life Insurance Payment