Cost & Coverage
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Can you up your coverage, or do you need to buy a new policy?
If you’re in the market for additional life insurance, that means you already have some life insurance coverage — good job!
If your financial situation has changed and you need more coverage, whether your life insurance is private or through your employer, you have some options to up your death benefit. If you have a permanent policy, you may be able to increase the coverage on your current policy. Otherwise, you can purchase a new policy.
Anytime your financial obligations increase or a major life event happens, it’s a good idea to review your life insurance coverage to ensure that if you died, those financial obligations would be taken care of by your life insurance death benefit.
Common reasons to need an increase in life insurance coverage include getting married, adding a new child to the family, co-signing private student loans or any loans, or buying or refinancing a house.
For example, many people first buy life insurance when they buy a home in order to cover the mortgage payment if they were to die.
For a 30-year mortgage, a 30-year term policy would ensure that if you were to die before the loan were paid off, your spouse would get enough to pay the balance due — even if you died the day after you took the policy out.
However, it’s very common to refinance a home or upgrade to a larger and more expensive home. Either scenario may mean that your original term policy no longer lasts long enough or has enough coverage to cover your entire debt, in which case you would want to add coverage or buy a new policy.
When a life event makes you reconsider your life insurance coverage, you need to go through the same steps that you went through initially to decide on your original coverage amount. Or if you only have coverage through your employer’s group plan, you may need to evaluate your life insurance coverage needs for the first time.
To evaluate how much life insurance you need, you start with the question: What if I died tomorrow? You add up all of your current financial obligations — childcare, housing, debt — along with your future obligations — tuition, spouse’s retirement — and come up with a number.
You can compare this number to the amount of coverage you currently have, whether from your employer’s group plan or from your current individual policy, and decide whether you need to buy more, and how much.
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If you have group life insurance through your employer, you have two options to increase your coverage: you can buy supplemental insurance through your employer-sponsored group plan or you can purchase a private term policy.
Purchasing private term life insurance is the best option for most people because it’s often cheaper than supplemental insurance through a group plan. More importantly, you can keep your term coverage even if you leave your job.
Some group plans have a conversion option, which lets you convert your coverage from the group plan into an individual policy if you leave your job. But the converted policy will generally be a permanent life insurance policy, which can be six to 10 times more expensive than a term policy, so a converted policy is not a good option for most people.
A better option for most people is to shop for a private term life insurance policy to make up the difference between your coverage needs and the coverage offered by your employer.
But if you’re older or have had health problems since you first applied for life insurance, or if you have dependents that are still relying on you for coverage, converting to a permanent policy may be a way to ensure that you still have coverage. The term conversion option could be a good backup if you’re unable to purchase another affordable term policy.
Read more about life insurance riders.
Depending on the language of your rider, you may be able to add coverage after a certain date or even after a qualifying life event, like a marriage or the birth or adoption of a child. If you have this rider, you may be able to simply increase the coverage on your current term policy and pay for the additional coverage without getting reassessed for health.
Whether you have coverage through your employer or your own term policy, applying for a new life insurance policy may be the best option for getting the coverage you need. This policy could replace your original policy or it could be stacked on top of your current policy by using the ladder strategy. The ladder strategy is a way to save money on premiums by giving you maximum coverage now, and having that coverage taper down and expire as your financial obligations decrease.
The medical exam from when you first purchased a policy is only good for about six months after your first application, so you’ll have to go through underwriting again, but your current coverage should mean that the whole process is less stressful — this isn’t your first rodeo. But there are some things to keep in mind if you’re shopping for life insurance a second time:
An important thing for second-time shoppers to do is hold onto your coverage. Your new policy isn’t in force until you’ve paid your premiums, signed your contract, and received confirmation from your insurer, and canceling your original policy before that could leave you without coverage. Don’t cancel your old policy until your new one is in force.
When you apply for a new policy, the agent will ask you about current policies and amounts, and it’s important to have details about your current coverage ready when you apply. Insurance is carefully regulated, and it’s important that you’re not overinsured.
If it’s been several years since you first applied for life insurance, be prepared for rates that come back much higher than the first time you applied. Policy premiums increase based on age and health history, and generally, your rates can only get higher as you get older. (An exception may be if your health has improved significantly or you quit smoking— in that case, your rates could go down.)
That said, the good news is the process is exactly the same as if you were buying a term life policy for the first time—there are no extra hurdles to jump through.
You'll compare quotes, fill out an application and go through underwriting, and then have your new policy and peace of mind.
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