Jul 15, 2021
If you have loved ones that rely on your income, it’s important to always have the right life insurance policy. The only tricky part is that life keeps changing on you.
Maybe you just bought a new house, had a second child or got remarried. Whatever the reason, you realize your coverage needs to last longer than you thought.
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While it might seem natural to wait until your current policy is about to expire before replacing it, experts say that’s just about the worst move you can make.
Here’s why, when it comes to matters of life, death and money, there’s no time like the present.
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Why would I need to replace my policy?
With a “term” life insurance policy — the much more affordable kind — you only pay for the time you need, whether that’s five, 10, 20 or 30 years.
During that time, you’ll know that your loved ones won’t have to worry about losing the house or struggling with medical bills if something were to happen to you.
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“Your biggest asset is yourself; your biggest asset is your income,” says Jeremy Hallett, CEO of life insurance comparison site Quotacy. “If you weren’t here to provide for your family, you’ll want to make sure that money is there.”
For most people, there’s no need to buy a permanent policy that will last until you’re 112. If you figure 20 years is enough time to pay off the house and build up savings for your partner, a 20-year policy will do.
That said, it’s hard to predict what your circumstances will be like 20 years in the future. Maybe you have a kid five years in — and with only 15 years left on the policy, it’ll expire well before your child graduates from high school.
As soon as someone knows they need more coverage, Hallett says, they should act right away.
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Why you shouldn’t wait for your policy to expire
The simple math behind life insurance, Hallett says, is that “every year you get older, it gets more expensive.”
Imagine a healthy 30-year-old man was able to find a 20-year policy for about $21 per month. If he waits until age 50, when it expires, buying a new policy of the same length might cost him $85 per month — and that’s assuming he hasn’t developed any health conditions in that time.
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“It’s cheaper to fix the problem today than to wait for the future to solve it,” says Hallett.
Cancelling a term policy early doesn’t come with any fees or penalties. Instead, moving swiftly before you get any older can help you lock in a low monthly rate that will pay off for years to come.
What to consider before getting a new policy
While it’s important not to dawdle, you still need to make sure the new policy you’re buying is the best fit for you and your family.
First, look at your life as it stands today and decide how much coverage you need, how long it needs to last and whether you need any additional riders.
Then it’s time to find the right insurer. There’s no need to stick with the same company that provided your original policy; in fact, the Insurance Information Institute recommends comparing at least three quotes before settling on an offer.
Shopping around for rates will ensure you get the best possible deal on your life insurance policy, meaning more coverage to protect your family and more money to spend on something fun in the here and now.
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Sigrid is a senior associate editor on the Moneywise team, where she has also worked as a reporter and staff writer.
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