As time advances, lots of things change.
And sometimes life insurance coverage needs change, too.
What if the term life insurance policy you bought several years ago has a death benefit that’s more than what you’ll need now and in the future? If that’s the case, can you reduce the value of your policy, cut the cost of your premium, and use that money for other things?
The answer: Maybe. It depends on the life insurance company.
Here are some questions to ask of your insurance provider if you want to lower your term life coverage amount:
Is a reduction in the term life policy face amount allowed?
If it is, there could be restrictions on when and how often you can make changes. Some companies allow you to change the coverage amount, but they have time and frequency limits (for example: only once per policy period or once every two years). You’ll also want to ask if a minimum face amount is required. There might be a limit on how low you can go.
What will the premium be for the revised policy?
If you’re going from a $500,000 policy to a $250,000 policy, don’t expect the premium to be cut in exactly half. Premiums consist of two things:
- A policy fee (usually in the range of $50 – $100).
- Cost of insurance, which is determined by a rate per thousand (RPT) of coverage. As policy size grows, the rate per thousand decreases. So a $500,000 policy may have an RPT of $0.30 and a $250,000 policy may have an RPT of $0.33 (note that these numbers are for illustration purposes only).
Both things considered, cutting your policy’s coverage amount in half probably won’t result in a premium that’s fifty percent of what you’re paying now. Only the insurance company can give you an accurate quote on what the cost of the premium will become after you decrease your death benefit, so ask them to calculate it for you.
Will I need to take another paramedical exam to get the coverage amount reduced?
If you’re changing the amount on an existing policy, you probably won’t need to take another paramedical exam. But some companies require you to start a new policy entirely if you want to reduce coverage. That means you’ll go through the entire underwriting process again (paramed exam and all), and you’ll be rated according to your current age, health status, and other considerations. Depending on how all of that plays out, you might find your existing policy more cost effective than a new policy with a lower coverage amount.
Before you cut your coverage…
Talking with a qualified, trusted agent will help you explore and understand your options. As you consider a lower term life insurance coverage amount, remember that one in four Americans say they need more life insurance rather than less. Make sure you’ve considered all of the expenses your loved ones will face after you’re gone before you make the decision to decrease your policy’s benefit.
If you don’t have a term life policy and want to find out how much coverage might best meet your family’s needs, you can use an online needs calculator to estimate it. Then you can get a term life quote quickly and conveniently online. Remember, if you expect your coverage needs to change over time, find out upfront whether or not the life insurance company will allow you to change your coverage amount, and ask about any restrictions that may apply.