Want to switch your life insurance policy?
Perhaps you want to adjust your cover and are wondering if you should change company at the same time? You might change your mortgage lender from time to time, but is it worth doing the same with life cover?
It’s certainly possible to change life insurance companies, but there’s a few things you need to know first…
Is it possible to change company?
Yes, who you have your life insurance with is completely up to you, and so you have the right to switch provider.
In much the same way as you would remortgage to a new lender or change who provides your home insurance.
While the process of changing is pretty simple, there’s a right way and a wrong way of going about it.
Read on, to see what this means.
Why would you want to change life insurance?
Many people will want to save some money on their monthly premiums by moving to a cheaper company.
But actually there’s a whole lot of different reasons:
- Moving home
- Getting a larger mortgage
- Having a baby
- Need a better policy
- Need a different policy
- Giving up smoking
- Relationship changes
All of these are good reasons to change your policy, but what are your options? Term insurance based policies are more difficult to change than whole of life policies, as the policy benefits and term are all fixed.
Make changes to your current policy
Some life insurance providers will allow you to decrease your level of cover, with a corresponding adjustment to the premium.
You may also be able to remove someone from a joint policy.
Increasing cover can be a little trickier, some insurers will need this to be via a new policy, but first you should check to see if you have a Guaranteed Insurability Option (GIO). This gives you the right to apply for extra cover if you increase your mortgage, get married or have a baby.
Apply for a top-up policy
If you need extra cover but your current insurance company can’t increase your policy sum assured then you may want to consider just buying the extra amount needed.
Let’s say that you currently have a mortgage and term insurance policy for 200k. You are moving home and need a 250k mortgage.
In relation to the life cover you could keep your 200k policy and then just buy some new cover for the extra 50k you are borrowing. This could be with the same company or a new company.
Get a new policy
If these options don’t work for you then maybe getting a brand new policy is the best idea.
You can then choose the sum assured, policy term and other benefits that are important to you.
What to consider before switching
First, do not cancel any of your existing policies yet.
No matter how much lower the premiums might be on a new policy, you mustn’t cancel your cover until the new policy has been approved and cover has started.
When applying to a new company you will need to provide them with your current medical history, occupation etc.
Taking out life insurance becomes more expensive as you get older. With increasing age comes an increased risk of having a medical condition that might affect your life expectancy.
If you’ve had any health problems since first taking out your policy, this may also affect your premiums, and you may even be declined for a new policy.
The quotes you will get for a new policy show the ‘standard’ premiums for someone of your age.
Once the insurer has assessed your application, they may increase the quoted premiums, making the policy more expensive. This could be due to medical history, occupation, hobbies, etc.
Suicide clause
Life cover policies will normally payout on a death caused by suicide.
However, cover for suicide will only be permissible once the policy has been in place for a certain period of time. This is generally 12-24 months.
If the policyholder passes away as a result of suicide during this time, the claim will probably be declined.
Contestable period
The contestable period in life insurance is like a trial period, usually the first two years after you get the policy.
During this time, if the person insured dies, the insurance company will closely check the details given when the policy was taken out. If they find any wrong or missing information, they might not pay out the claim. After this two-year period, it’s much harder for the insurance company to refuse a claim.
How do you switch life insurance?
It’s not possible to simply transfer an insurance policy to another insurer.
Research your options
Take a look at the different policies and their costs. Not all policies are equal. Check out the benefits and features you need. A financial adviser or broker will be able to help you research the market. Don’t just choose the first one that you come across.
Apply for the new policy
Once you have decided on a new plan then it’s time to make an application. This will involve supplying the new company with your medical details and the level of cover you need. Most forms will ask if you have any existing policies and what you intend to do with them. It’s really important to answer these questions accurately and truthfully.
Choose when the new cover starts
The new policy won’t just start automatically. The insurer will inform you once they have finished assessing your application and the underwriting. Check through everything to make sure it looks OK. Then you can decide when to start it. It can be convenient to do this around the time you normally pay for your current life insurance.
Cancel the current policy
Once your new policy has been approved and cover has started then it’s OK to cancel the current policy. You will need to contact the insurance company and then tell them when cover should stop. Try and give them at least 7 days notice, so that there’s time to cancel the direct debit.
Do not forget to cancel it!
Can you have more than one life insurance policy?
Yes, you can. There’s no limit on the number of policies you can have.
However, insurers will want to know about your existing policies and what they are being used for.
It can be handy to have separate life policies for different purposes.
For example:
A decreasing mortgage protection policy to cover your main mortgage, which is set up on a repayment basis.
Another level term policy that protects a second charge mortgage you used for home improvements.
And a family protection term insurance, to provide extra security for your family and dependants.
Should you change policies if you have given up smoking?
When you apply for life cover you will need to tell the insurer about your smoking habits.
Smokers pay much higher premiums than non-smokers. This is because smoking is linked to a range of health issues, making smokers a higher risk for insurance companies.
But what if you have now given up smoking?
First of all, congratulations!
As an ex-smoker you should be entitled to a reduction in your premiums. But this won’t be possible straight away.
You need to have given up for 12-24 months before being granted ‘non-smoker’ status.
The first thing to do is check with your current insurer; would they offer you a premium discount and how long do you need to wait?
Some insurers won’t agree to reduce your premiums. So then you could look to take out a new replacement policy as a non-smoker.
Do you need life insurance to get a mortgage?
When you’re looking to buy a home or remortgage, one of the most important decisions you need to make is whether or not to take out life insurance. There are plenty of reasons why taking out a policy could be beneficial to you and your family. In this article, we explore what life insurance is and how it works when applied towards mortgages.
