Whoops, I have too much life insurance. Can I change my policy?

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Whoops, I have too much life insurance. Can I change my policy?

Life insurance is designed to help the people who depend on you pay for stuff in the event of your untimely death. (Sad, but true.) The best life insurance policy accounts for your income, assets, major debts, and future obligations, like the cost of college or your funeral expenses, at the time of underwriting. (Yeah, sorry. It’s real hard to keep life insurance stories light and airy.)

But let’s say Junior gets a scholarship, you pay off a ton of debt and/or get a totally unexpected windfall. Suddenly, you have way more coverage than you need — and, more pointedly, a premium higher than it needs to be. Are you stuck with it? Probably not.

Can I adjust a life insurance policy?

Per our trusty policy geniuses, most life insurers let you decrease your coverage at least one time during the life of the policy. Standard operating procedure varies by carrier and product. Some insurers won’t let you change a policy until it’s been in force for a year; others make you wait three. And — certified genius tip right here — some don't guarantee they’ll approve a coverage decrease, but usually will.

Bottomline: For term life insurance and whole life insurance, you can generally elect to decrease your coverage amount at least one time after three years of the policy, which will, in turn, reduce your premiums.

What is adjustable life insurance?

Now, there are policies that have more flexibility built in. Adjustable life insurance — also known as flexible premium adjustable life insurance or even just flexible life insurance (yes, everything insurance-related has at least two names) — lets you change certain facets of your policy. That includes your coverage period, premiums and death benefit.

Sounds pretty sweet, right? Thing is, adjustable life insurance is a derivative of universal life insurance. It has a savings component, but there’s an element of risk involved. See, unlike traditional whole life insurance policies, the interest you earn on a portion of your premiums is tied to an index or money market fund.

If market rates are high, great: You’re earning money you can use to pay your premiums or even withdraw or borrow against. But, if market rates stay low, welp, you could have to increase your premium or decrease your coverage to make up for lost value. Otherwise, your coverage will lapse (and we’re assuming you don’t want that).

A primer on universal life insurance

You can learn more about the pros and cons of universal life insurance here, but our geniuses rarely recommend it. For one, it’s way too complicated. (We totally get it if your head is spinning a bit right now.) It’s also more expensive than a term life policy — and often unnecessarily so. Someone who lives a nice long life will probably make more money if they invested in an IRA or 401(k). And someone who dies prematurely will have paid more money for the same amount of coverage provided by a term life insurance policy.

Still confused? No worries, you can go here to chat about your life insurance quotes with one of our agents.

How to lower your life insurance coverage

If you’ve unexpectedly outgrown your coverage, call your insurer or agent. They’ll let you know if you can decrease coverage and, if so, what restrictions may apply.

Keep in mind, too, you can sometimes negotiate a lower premium with your insurer after making a significant lifestyle change. Say, for instance, you quit smoking or lose some weight. Your life insurance company could agree to let you take a new medical exam (they’ll usually do so a year or two after a policy is in force). And, if the results are better that second time around, you might get offered lower premiums.

Image: Portra