Thursday 13th of August 2020

All About Refinancing a Life Insurance Policy

If you have a term life insurance policy, you’re probably paying way too much for it. Term life insurance premiums have been plummeting for more than ten years and are now at historic lows, according to a recent survey. Refinancing is a well-known and very popular financial tool that consumers often use with mortgage loans and sometimes even with car loans. However, very few people are aware that the same tool can be used to obtain lower rates.

When to Refinance

You might be able to get more competitive premiums on your policy if:

  • You bought your policy some time ago. You might think that because you’re older now, there is no chance that you could qualify for lower life insurance. In reality, increased competition in the industry and lower mortality rates have made it possible to get lower rates than you did ten years ago, despite the increase in your age.
  • You bought coverage through your employer. This is probably the most convenient way to get a policy, but it’s not necessarily the most cost effective. Especially if you’re younger and in better health than the average employee, you might be getting overcharged on your premiums. The insurance company sets premiums to cover high-risk groups, so you’re basically paying for the premiums of older workers in poorer health.
  • You don’t qualify for the best rates with your current insurer. You might qualify for preferred rates with another insurer.

Tips on Refinancing

If you decide to refinance your policy, here are some tips to help you along the way:

  • Tell the truth. Lying about your habits or health on a life insurance application to get lower rates is not only risky, but just plain dumb. One way or the other, your insurer will probably find out the truth, and your beneficiaries will pay the price for your dishonesty. For example, if you lie about your smoking habits and the insurer decides to investigate a claim after you die, a simple conversation with a relative or neighbor might reveal your secret habit. The claim would then be denied.
  • Shop around for the lowest rates. Rather than fabricating the information on your application to save money, you are better off simply shopping around for the best deal. You can find an abundance of sites on the Internet that offer multiple quotes on policies. If you have a certain illness or habit that would raise your premiums, try to find an insurer that doesn’t penalize you as heavily as others for that particular situation.
  • Avoid gaps in coverage. Don’t cancel your old policy until your new one is in effect. You don’t want to have any lapses in coverage.
  • Get adequate coverage. The amount of your policy and the length of the term are both very important. Young parents should get at least a 30-year policy with rates that are guaranteed for as long as they need life insurance.

Additional Resources