Can you reduce the coverage amount on your term life insurance policy?

Life brings about unexpected changes, both good and bad, and it’s unrealistic to think that setting up life insurance in your early years means you’ll never need to change it. But, on the other hand, you might reach a point where the policy you initially bought is too excessive, and you no longer require such a large amount of life insurance. 

Are you able to lower your life insurance coverage? The answer will depend on your insurance company. This article will explain what to expect if you can have multiple life insurance policies. and what limitations you might encounter.

Read more: Can you have multiple life insurance policies

Can I reduce the face amount of my term life insurance?

Most insurance companies will allow you to modify your life insurance policy, whether to increase or decrease coverage. However, there might be some time and frequency limits on how often you can request for changes to be made. There might also be a minimum amount you’ll need to maintain.

When signing up for term life insurance, make sure to find out if your insurance company will allow you to change your coverage amount later. Also, ask about any restrictions that may apply.

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Will I be required to take another paramedical exam?

Increasing your death benefit will almost certainly require a new paramedical exam, but decreasing the life insurance policy usually doesn’t. However, some insurance companies will require you to start an entirely new policy if you wish to reduce coverage. You’ll need to go through the entire application process, including the paramedical exam. 

If this is the case, your new policy will be rated based on your current information instead of your parameters at the initial application. Therefore, keeping the old policy with a higher face amount of life insurance might be more cost-effective than getting a new reduced one.

What will be the revised rate?

Cutting your life insurance benefit in half doesn’t mean that your rate will be halved as well. Your insurance rate is calculated based on two amounts: the policy fee, which is usually $50 to $100, and the cost of insurance, which depends on the size of your policy. 

Therefore, you can expect your insurance rate to go down if you reduce the coverage, but the calculation isn’t as straightforward as it might initially seem. Your insurance company will be able to give you the exact rate you will pay if you decide to decrease your death benefit.

Decreasing Term Insurance Policies

There are three main types of life insurance policies: decreasing term, level term, and permanent life insurance.

Decreasing term life insurance provides coverage for a set period of time. For example, if you pass away while the policy is active, your beneficiaries will receive a payout from your policy. This payout gets reduced over time, but the upside is that the rates are more affordable than with other policies. The decreasing term policy is usually used if you need to repay a debt, for example, a mortgage or a business debt.

If you choose level term insurance, your premiums and death benefit will remain the same from the day you sign up until payout. On the other hand, permanent life insurance offers lifelong coverage that never expires. While term insurance is the right choice for most families, a permanent policy might be a better option if you or your family member are disabled or require long-term medical care.

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Exploring Case Studies: Reducing Term Life Insurance Coverage

Case Study 1: John’s Insurance Modification With SecureLife Insurance

John, a policyholder with SecureLife Insurance, wanted to reduce the coverage amount on his term life insurance policy. He contacted SecureLife Insurance and inquired about the possibility of modifying his policy. SecureLife Insurance informed John that they allowed policy modifications, including decreasing the coverage amount.

However, there were certain limitations and restrictions to consider. John decided to proceed with reducing his coverage and worked with SecureLife Insurance to make the necessary changes.

Case Study 2: Sarah’s Policy Revision With Guardian Insurance

Sarah held a term life insurance policy with Guardian Insurance. Over time, Sarah’s financial situation improved, and she realized that her current coverage amount was excessive. She contacted Guardian Insurance to inquire about reducing her life insurance coverage.

However, to her surprise, Guardian Insurance informed her that they did not allow reductions in coverage. Instead, they advised Sarah to consider starting a new policy with a lower coverage amount.

Sarah weighed her options and decided to keep her existing policy with Guardian Insurance, considering the potential costs and implications of starting a new one.

Case Study 3: Mark’s Revised Rate With SecureShield Assurance

Mark had a term life insurance policy with SecureShield Assurance, and he wanted to decrease his coverage to better align with his current needs. He reached out to SecureShield Assurance and requested a revised rate for his policy.

The insurance company informed Mark that reducing the coverage amount would result in a lower premium. However, they explained that the rate reduction would not be proportional to the coverage reduction.

Mark received a detailed quote from SecureShield Assurance, providing him with the exact rate he would pay after decreasing his death benefit.

Final Thoughts on Reducing Term Life Insurance Coverage

While decreasing term policies might sound like a good idea, there is an important downside to consider. Reducing your term life insurance might leave your family with less coverage than they need. Plus, the difference in your monthly premium might only be a few dollars, so it might not be worth reducing your coverage.

Read More: What is level-term life insurance?

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