Is it better to switch term life insurance coverage every few years to get lower premiums?
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Asked June 21, 2015
Life insurance is not like other types of insurance which can be easily swapped to a different company. For those, you are free to change your insurance provider whenever you want, but with life insurance policies are calculated by your age as well as other factors, and changing policies often could lead to problems. The thing is, that is beside the point, because term life policies are not designed to transfer the way, and for instance, a car insurance policy would.
When you purchase a term life insurance policy, it is based on your current age, life expectancy, and state of health. Even if your health did not change over a two year period, your age and life expectancy would. Because of that, each successive policy would cost more than the one you purchased before. And if something should go wrong with your health, you could discover that you are no longer insurable, or have to pay extremely higher rates.
The fact that your rates are locked in is one of the advantages of life insurance. Your premiums will not increase at the same rate as they would if you were buying a new policy every few years, so that people who have their policies for the longest period of time ultimately pay lower premiums for an equal policy. The younger you are when you buy a term life policy; the cheaper it will be to purchase. If you reach the end of the policy period, you can convert it to a permanent life insurance policy without losing your entire investment.
When you swap insurance companies, you have to reapply for a new policy. Each application will involve checking your credit score, your health, and going through a list of questions designed to determine your current risk. The fact that you had a different term life policy will not affect your application for the new policy, and none of the money you have paid into the previous policy will carry forward.
Answered June 22, 2015 by Anonymous