When you take out a life insurance policy, the level of cover you opt for (how long the policy lasts for, how much it would pay out), is based on your financial situation at that time. Over time your financial commitments can change – for example, as you gradually pay off your mortgage and reduce the outstanding debt, or children who used to be financially dependent on you grow up and leave home.
To make sure you are getting the most out of your life insurance policy, it is important to check it regularly and consider changing the terms so it keeps up to date with your changing financial needs.
If you are thinking of changing your life insurance policy, there are a few things you need to consider first.
Can you change your policy, or do you need to cancel it?
If you have reviewed your current life insurance policy and decided you would benefit from changing it, the first step you need to take is to contact your current provider.
A lot of life insurance companies allow for their policies to be changed – you may want to reduce the amount of cover if you have paid off a chunk of your mortgage, or you might want to increase the cover after certain life events (having a child or grandchildren, moving house etc.)
If you are looking to reduce the amount of cover, or length of time you are covered for, then you can benefit from reduced monthly premiums. If you are looking to change your policy to increase the cover then your premiums will increase. However, if you are not happy with the quoted premium price – whether it is a reduction or an increase – then you still have the option to cancel your policy and shop around for a better deal.
You may also have no choice but to cancel, as some life insurance policies do not allow for any changes to the terms.
Bear in mind, though, that if you are looking for a new life insurance company you may have to face new health and occupation checks before you are accepted.
Another thing to consider is whether it would work out as more cost effective to keep your current life insurance policy in place and just take out some form of ‘top-up’ cover with a new provider.
As life insurance premiums tend to be cheaper the younger you sign up, your existing policy could be at a much better rate than any other policy you can find now you’re a bit older. So if you need extra cover it might be cheaper to keep your current policy and get the extra cover elsewhere. The difference in price could be even greater if you have suffered any health problems since you took out the original policy.
There are many different forms of life insurance, all of which offer different benefits and policy features.
Depending on your circumstances at the time you took out the policy, you could have opted for a whole of life insurance policy, a mortgage-only life insurance policy, a level term life insurance policy or simply an income protection policy.
However, circumstances can change and what your current life insurance policy offers you may not be what you need right now. Perhaps you want to change to a policy that is trust based so as to avoid inheritance tax, or now the mortgage is close to being paid off you want to change your payment plan.
Whatever the reason, we can help you identify the life insurance product that is ideal for your current circumstances.
Common reasons for changing your life insurance policy
There are many reasons why you might want to consider changing or switching your life insurance policy. For example:
- Your life circumstances change
- You need to add or change a beneficiary of your policy
- You find a better type of policy that suits you e.g. whole of life or term insurance
- You see a cheaper policy elsewhere
Below we go into more detail about some of the reasons you may want change, cancel or switch your life insurance.
Changes to your mortgage
For a lot of people, life insurance is taken out to cover a mortgage – and in many cases, this financial commitment will increase, for example, if you move into a bigger house in the future. If you do not review your life insurance terms at this point then you could end up not being insured for the full value of your mortgage – which could leave your family in a financial hole if you were to pass away.
The same could also apply if you have remortgaged in order to release equity from your home.
Alternatively, when you moved you may have extended your mortgage term so that the monthly repayments are manageable – which could leave you with a life insurance policy that will pay out in the next 20 years, but a mortgage that will need paying for another 25 years.
Changes to your family
As life insurance policies are generally taken out to protect our family, another common reason to review and change your policy is if there is a change to the size or make-up of your family.
For example, if you originally took out a life insurance policy when you and your partner bought your first home, then you may want to amend the policy when you have children.
As your family grows, your responsibilities change – so you may want to increase the level of cover to not only pay for the mortgage when you pass away but to also make sure your children are well provided for e.g. make sure they have enough money to go to University.
Changing your life insurance beneficiaries
When you pass away, your life insurance payout goes into your estate along with any other assets such as your home and investments. Your estate is then distributed among your beneficiaries in accordance with your will (if you have not prepared a will then intestacy laws are used to distribute your estate).
Another option is to set your life insurance policy up in a trust. This will mean your beneficiaries/dependents can access the payout with the lowest amount of tax applicable.
Writing your life insurance policy in trust means that any payout from the policy is not included as part of your estate for inheritance tax purposes. The standard inheritance tax rate is 40% on any assets above £325,000. So depending on the value of your other assets, as much as 40% of your life insurance payout could be paid as tax unless the policy is written in trust.
Get a free life insurance quote
Whatever the reason, if you are considering a new life insurance policy it is important to shop around to find the best deal suited to your own individual needs. Our life insurance experts are on hand to help you find the perfect life insurance deal.
Get in touch today for a free, no obligation quote.