Life Insurance Policy Changes

Life insurance is more than just a policy; it is a promise to protect your loved ones. But life changes, and so should your life insurance. As you grow, your financial and personal needs evolve, and so must the protection you choose. Here is a detailed look at how you can introduce life insurance policy changes.

Changes You Can Make to Your Life Insurance Policy

When you first purchased your life insurance, it most likely fit your situation at the time. However, as life progresses, certain circumstances may push you to rethink your life insurance policy.

The good news is that there are several adjustments you can make to align your life insurance with your current needs. Let's take a closer look at these options for life insurance policy changes.

Increase or decrease the death benefit

One of the most common life insurance policy changes people make to their policy is adjusting the death benefit. This refers to the amount paid to your beneficiaries upon your passing. You may want to increase the coverage when you get a promotion or take on a larger responsibility, like buying a house.

Similarly, if your financial situation improves, you could decrease the coverage to match your reduced financial obligations. Keep in mind that increasing your death benefit often comes with higher premiums, but it ensures your loved ones receive the support they need.

Remove a rating or exclusion

If a medical condition or lifestyle factor was the reason why you increased your premiums when you first purchased your policy and would like to reduce it, you now have the option to remove this rating or exclusion.

Let’s examine such life insurance policy changes. If you were classified as high-risk due to a medical condition that has since improved, you can request a re-evaluation. Removing such exclusions can result in lower premiums, saving you money over time. Always review your insurance company’s guidelines on this process to see if they apply.

Change to non-smoker rates

Smoking is a common factor that raises life insurance premiums significantly. If you were a smoker when you bought your policy but have since quit, you may now qualify for non-smoker rates. This is one of the common life insurance policy changes.

Most insurance companies require you to be tobacco-free for a certain period, usually a year or more, to be eligible for these lower rates. By making this change, you could enjoy considerable policy savings while reflecting a healthier lifestyle.

Smokers typically pay higher premiums for life insurance compared to non-smokers. This is because smoking is linked to numerous health risks, including heart disease and cancer, which increase the likelihood of a claim. Non-smokers generally benefit from lower premiums due to their healthier lifestyle choices.

Change or remove a life insurance rider

Riders are additional features added to your life insurance policy for extra benefits. If you added riders such as critical illness or accidental death benefits, you may later decide to change or remove them based on your current needs.

For instance, if you already have sufficient critical illness coverage through other means, removing this rider could reduce your overall premium. Reviewing your riders periodically ensures you aren’t paying for unnecessary extras.

Exercise a rider option

Exercising a rider option allows you to take advantage of specific benefits attached to your policy.

For example, some life insurance policies offer a waiver of premium rider that covers premium payments if you become disabled and cannot work.

Others may offer accelerated death benefits if you are diagnosed with a terminal illness. It's important, therefore, to know which riders your policy includes and how to use them when needed.

Convert to permanent insurance

If you initially opted for a term life insurance policy, you may want more long-term protection. Converting your term policy to a permanent life insurance policy is a possible solution.

Permanent life insurance, such as whole life or universal life insurance, provides coverage for your entire life and also builds cash value over time. While converting will likely increase your premiums, it ensures lifelong protection and can act as a financial asset in the long run.

Switch to a longer-term

Sometimes, extending your policy term is more beneficial than converting to permanent insurance.

For instance, if you took out a 10-year term life insurance policy but now want coverage until you retire, you can switch to a 20-year or 30-year term policy. This change allows you to maintain an affordable term life coverage for longer while also maintaining financial flexibility.

Change life insurance beneficiary

Life insurance beneficiaries can be changed at any time, which is often necessary after life events like marriage, the birth of a child, or even divorce. Reviewing and updating your beneficiaries regularly is crucial to ensure your death benefit goes to those you intend to support.

Remember that some beneficiaries, such as those in a trust, might require legal consultation before making changes. Ensuring your policy reflects your current wishes will give you assurance of their fulfilment in your absence.

Change ownership of life insurance policy

Ownership of a life insurance policy can be transferred to another person or entity, such as a family member or a trust. Changing ownership may be useful for estate planning or tax purposes.

For example, some people transfer ownership to reduce the tax liability on their estate. However, this decision should be made carefully and ideally with advice from a financial planner or tax advisor, as there may be legal and tax implications to consider.

Change investment options

For those with a Unit Linked Insurance Plan (ULIP), which is more common in India, you can choose how your premiums are invested. ULIPs combine life insurance with investment, allowing you to allocate your money between equity and debt funds based on your risk tolerance.

If your financial priorities shift, such as preferring safer options over high-risk investments, you can adjust your portfolio accordingly. Regularly reviewing your fund choices ensures that your life insurance remains aligned with your financial goals, whether you’re planning for retirement or building wealth for your family.

Stop paying premiums

Sometimes, life throws you a curveball, and continuing to pay premiums might not be financially feasible. Depending on your policy, you could stop paying premiums while maintaining some level of coverage. For example, if you have a permanent life insurance policy with accumulated cash value, you could use that to cover your premiums.

However, if the cash value depletes, your policy could lapse, leaving you without coverage. Hence, before making this decision, always check with your insurer about the implications of stopping your premium payments.

Reinstate a lapsed policy

If your life insurance policy has lapsed due to missed premium payments, you may have the option to reinstate it. Most insurance companies allow you to reinstate a lapsed policy within a certain time frame, typically 30 to 90 days. However, you may need to undergo a medical exam or pay past-due premiums as well as interest.

Paying late fees on a lapsed life insurance policy is necessary to cover the missed premium payments and maintain your coverage. These fees, along with potential interests, ensure your policy remains active without interruption or loss of benefits for your beneficiaries.

Reinstating your policy ensures you retain your original coverage and terms, though the process can sometimes be more costly than keeping the policy in force.

Changing not enough? Consider a new policy

There are situations where adjusting your existing life insurance policy might not provide the coverage or flexibility you need. In these cases, replacing your old policy with a new one could be a better option.

For example, if your financial obligations have drastically changed or if you’re looking for better investment options, switching to a new policy might offer better long-term benefits. However, switching comes with its own set of risks, such as losing benefits accrued under your old policy, so make sure to compare your options carefully.

Changing a life insurance policy can be smooth if you understand your current needs. Staying informed and making decisions that align with your financial and personal situation is essential. Top insurance companies, like SBI Life Insurance, offer flexible options for revising your policy to meet your changing needs, ensuring you remain adequately protected throughout your life journey.