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Should you switch life insurance companies to save money?

Daniel Walker
Licensed Insurance Agent for 15 Years

UPDATED: Mar 19, 2020

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Should Switch Life Insurance to Save MoneyIt is probably tempting to consider switching life insurance companies to save money. With all the car insurance commercials trying to convince us to constantly compare quotes and switch companies, it seems only natural to apply the same concept to life insurance.

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However, there are distinct differences in life insurance and other types of insurance which may preclude and discourage you from switching in the middle of a policy term. Review the facts and make an informed decision. As with anything, it will depend on the company and the type of policy that you have.

Some of these constraints may be applicable to your policy, some may not. Please be sure to get the advice of an insurance professional before making changes to your policy. There are a few reasons why you may want to be cautious about switching your life insurance policy.

Cautions against Switching Life Insurance Companies

Contestability Period- Some organizations have something called a contestability period, which basically means that many insurance companies institute a period of two years in which they have the legal right to contest the validity of your life insurance.

If you die within the two years of purchasing the insurance, there is the potential that your life insurance policy could be deemed null and void by a court system. This could leave your loved ones without the benefits of your life insurance policy that you invested in for years.

Commission- Commission and sales costs are often calculated into first year premiums by some companies, which can actually end up giving you a higher rate than anticipated.

Health Statistics- With each passing year, health statistics can change and be calculated differently. Most life insurance companies are going to require an extensive health physical test, blood work, and proof of health history. Typically, advisors suggest obtaining a life insurance policy during your younger and healthier years, and if you are constantly switching policies this could ultimately lead to a higher rate as you continue to age and your health declines.

History: Your’s and Their’s

Reliable Companies- Further, if you are finding lower rates as your health decreases and age increases, it is possible that the life insurance company is not in as good standing as others. If they are offering a very low rate when your health poses a greater risk to them then it previously would have, you must ask why the company has such low premiums. Always be sure to check the financial standing of your company before deciding to sign up for a new policy.

Insurance History- Finally, some insurers have discouraged switching policies by asking for a life insurance history of years with the application. If you have short term periods of insurance with previous life insurance companies, they may require a number of contract years before issuing a policy.

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Reasons to Switch Life Insurance Policies

However, other experts actually suggest participating in the competitive business of life insurance. Many say that switching your policy every few years will guarantee the lowest possible premium, but be sure to make sure it does not have some of the constraints listed above. If you do decide to switch life insurance companies to save money, it would be wise to keep a few of these tips in mind:

  1. Compare Benefits and Cash Value- Before switching policies, ask the company to send a breakdown of the policy to you so that you can compare items line by line with your existing policy. Be sure to not just compare the premiums, but also the death benefits and cash value payout.
  2. Lower Premium- Make sure that the premium offered is the final premium; if there are pending health tests or your application has not been fully processed, those pending results could end up with premium increases. If you truly get a lower premium it may be worth the move.
  3. Prior to accepting the new policy, make sure that you understand the terms. Some new contracts will require a certain amount of years locked into the policy; others will only guarantee premiums for the first few years and leave the option to increase after that grace period. Have an objective party read over the contract before signing with the new life insurance company.

Finally, if you ultimately decide to switch life insurance companies to save money on your premiums, be certain that the new policy has taken effect before canceling your previous policy. The last thing you want to do is have a lapse in coverage, as this could be held against your favor if you try to switch policies again. If you need to find life insurance that will protect your loved ones, try using a third party life insurance quote tool like the one at the top of this page.

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