Should You Switch Policies?

Should you drop your present insurance and buy a cheaper kind or one of the newer types of coverage? That’s a proposal an insurance agent may make to you, but the odds are it wouldn’t be a change for the better. Still, you ought to investigate. A significant number of policyholders do benefit from changing or updating their coverage.

hole life policies being replaced with other types of life insurance has evoked concern inside and outside the insurance industry. High-pressure selling, misrepresentative policy terms and failure to provide consumers with comprehensible policy comparisons are said to be fairly common.

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“Most of those who are induced to give up their old dividend-paying policies in favor of new ones suffer serious financial harm,” 

NIera “participating” policy–one that pays dividends–keep it. If it’s nonparticipating, replace it. There are exceptions. For example, if you have several small dividend-paying policies, it might be better to replace them for the sake of efficiency.

Most policiensto increase them for several reasons. High-tech modernization has lowered their operating costs. Their policyholders are living longer, so they are paying proportionally less in claims. And higher interest rates are giving them better yields from the money they invest. An industry index based on fairly typical policies sold by selected companies shows consumers are paying 32% less for whole life, on the average, than in 1960.

A policy thaidght several years ago would not necessarily be a better deal. You’ve already paid the sales and underwriting costs for the old policy; most of the premium money for the first year or two went for that. You’d have to pay those charges all over again for a new policy, so there would be no cash buildup for a while.

On the od eous. Examples:

  • If the cash buile substantially greater and would begin reasonably soon;
  • If you want more protection than an existing whole life policy provides but wish to minimize your premium costs (to pay the premiums on term insurance, you could borrow against the whole life cash value, usually at below-market rates, or withdraw the money and make income-producing investments);
  • If you have term insurance and find you can get it for less from another company, along with comparable renew-ability and conversation guarantees.

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If you have an old, mpany whether it has un update or exchange program or is planning one. A small but growing number of insurers will sweeten or replace existing policies at little or no cost to the holder.

These saounge:

  • Be wary of any agewhttles your present insurance without demonstrating convincingly that his or hers is better.
  • Avoid agents with little experience.
  • Show any proposal you receive to the agent who sold you your present policy. Your agent will be only too happy to point out any flaws or discrepancies in the proposed policy.
  • Make sure any new policy will take effect before your old one expires.
  • Insist on a written replacement illustration showing where you would stand with each policy at various times in the future, and ask the agent to sign it and also to state in writing that the change will benefit you. (About 40 states have specific regulations governing replacements, and 13 of those require insurers to provide comparison statements. The insurance department can tell you about the legal situation in your state.).
  • Ask how much you’ll have to pay for the acquisition costs.
  • See how the loan rate compares with the policy you have.
  • Find out when the next dividend will be paid if you have participating whole life. It may be smart to wait until after that if you decide switching makes sense.

If you want to check on anysk at your library for Best’s Insurance Reports, an annual publication that profiles about 1,800 life insurance companies and rates them according to financial strenth. It also gives information on their management and product lines. Best’s Flitcraft Compend, which an insurance agent can show you, has descriptions, rates, dividend scales, cash values and other data about some 300 companies.

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