You Didn’t Buy Enough Insurance: Now What?

We all remember the story of Goldilocks and the Three Bears. If you don’t, let us refresh your memory: a tiny blonde girl named Golidlocks commits a breaking-and-entering felony while the Three Bears are out, and she proceeds to eat their porridge and sleep in their beds. She tries multiple bowls of porridge and all three beds, determining most of them are  “too hot,” “too cold,” “too small,” and “too big,” until she finds the one that is “just right.”

Now, you’re probably wondering why we’re bringing up a child’s nursery rhyme on a senior life insurance website. Shopping for life insurance is similar to Goldilocks’s search for comfort: you want to make sure your policy is just right for you and your family’s financial needs. Too much and you could be saddled with higher-than-necessary premiums. Too little and you aren’t leaving your family with enough financial protection. 

We talk a lot about why seniors should sit down with a trusted life insurance agent, often in terms of getting the best rates. What we don’t mention is how an independent agent can help you figure out how much life insurance you actually need – and what to do if your current policy is not suited to your financial needs. Here are some options for when you’ve realized you didn’t buy enough life insurance coverage. 

Cancel Your Policy
You probably didn’t know this, but your life insurance policy most likely comes with something called a “free look period.” This period lasts between 10 and 30 days, depending on your location. During this time, if you feel as though your policy is not right for you, you can cancel and any premiums will be refunded to you. 

Unfortunately, many seniors don’t realize their policies are too small until they’ve had the policy for a while. 

The process of canceling your policy is fairly straightforward, depending on the type of policy you have. For example, with a term policy you can just stop paying your premium. We don’t typically recommend this method, especially if you are considering using the same company for your new policy. In this instance, you should have your agent draft a letter to the carrier, letting them know you’re canceling your policy. There may also be a cancelation form on your carrier’s website. 

With whole life insurance, however, cancelling is slightly different. You will still be able to cancel, but when you cancel is important. If you are cancelling within the first 5-10 years of starting the policy, the policie’s fees will most likely have eaten the cash value; however, if you’ve had your policy long enough to build equity, your insurer will send you a check following your cancellation. It is important to talk to your life insurance agent and your carrier, because if you stop paying premiums on this type of policy without an agreement, your carrier may view your policy as lapsed.

Switch From Whole to Term Life Insurance
Instead of cancelling your policy outright, you can also switch the type of policy you have if you need more coverage. 

We’ll preface this by saying: this works best when going from whole to term life policies. Whole life insurance policies often have large upfront fees and higher premiums. The added expense of whole life insurance is occasionally the reason that families wind up underinsured, because they’re relying on the cash value accrued in the policy. Additionally, the benefits are almost always larger with a term life insurance policy. 

If you’re changing policy type to ensure you have a larger benefit, you will go through the cancellation process mentioned above, and will, most likely, have to go through the underwriting process again. 

Consider Riders
Another option for additional coverage or benefits are riders. One example is inflation riders, which is designed to adjust the dollar amount of your coverage to keep up with rising costs, such as medical care. With this rider, your death benefit will increase by a fixed percentage annually. 

A waiver of premium rider is an option that won’t increase your death benefit, but will decrease your premiums. With this rider, should you need extra protection if you become disabled and are unable to work,you wouldn’t have to pay your premiums.  

A policy purchase option is another rider choice that allows you to buy additional future coverage, regardless of your health. Not all carriers offer this option, so be sure to consult with your agent to see if your carrier offers this option. 

Go Through The Underwriting Process Again
One thing to keep in mind when applying for more life insurance is that you will, most likely, have to undergo another underwriting process. Yes, this means undergoing another medical exam. 

Don’t be discouraged! Depending on how long you’ve had your policy, and barring any drastic changes in your health, you will most likely be rated similarly to your previous policy. However, you should be prepared to pay slightly more in premiums because you are increasing the size of your policy. 

Being underinsured can be a frightening reality for seniors. The good news is that there are steps you can take to increase your life insurance policy. Often, these steps start with – yep, you guessed it – talking to an independent agent. Life insurance is an important financial cornerstone, for protecting your family and your assets after you’re gone. If you’re unsure if your policy is the right size for you, or if you aren’t sure where to start with choosing a death benefit, give us a call today!