Never cancel an existing Life Insurance Policy until a new one is in force!
Never cancel an existing Life Insurance Policy until a new one is in force!
Life insurance is a very necessary purchase, and chances are, you already own a policy. The current life insurance rates are at near record lows. Most people, who bought their policies several years ago, are actually paying higher premiums than they would pay if they bought a policy now. It is a good time to review your policy and replace it with one that costs less and provides better protection.
When most people consider replacing policies, they first think of canceling their old policy, before shopping around for a new policy. It is a psychological reaction, because they feel they will be stuck paying premiums for two policies instead of one. However, one must never cancel an existing life insurance policy until a new one is not only bought, but is in force.
The importance of understanding what "in force" means.
What does "in force" mean? It means that your policy is active, and your first premium is paid for. Most consumers think that they can cancel an existing policy and then start looking for a new one, or when a new life insurance carrier approves them for a new policy. However, your new policy will come into effect only when your first premium is in place. Applying for a policy is not an assurance that your policy has been approved, and receiving intimation that your policy is approved, is not enough. It is merely an offer by the life insurance company, and will come into effect only when you accept the offer by paying the first premium.
Why wait until a new policy is in force, before canceling an existing policy?
- When you don't wait until your new policy is in force, you remain uninsured for a certain period of time, between policies. This is a big risk, because should you die unexpectedly during this period, your loved ones will be left unprotected.
- You may not qualify for a good rate on the new policy, or may even be declined a policy. You may have bought your existing policy a long time ago, when you were in good health. If your health has deteriorated since then, it is possible that your premiums may not be as low as you expected them to be. You may in fact regret letting go of your earlier policy in haste.
- New policies are totally different, and come with new riders and options, but chances are that when your new policy comes into effect, you will realize that the riders on the policy you just let go, in fact gave you unbeatable value. In this case, you can't go back to the older policy, and you will have regrets.
The conversion feature is a great alternative to buying a new policy
If your health has declined since you first purchased your policy you may have trouble getting a new policy. In spite of poor health, you may still qualify for a new term life insurance policy at good premiums and coverage, but it is fairly certain that your premiums will dramatically increase when your level term period comes to an end.
In this case, term conversion is an attractive option. It allows you to convert your existing term life insurance policy to a permanent one, without having to prove insurability. This takes care of you even if your health has deteriorated, and the new premiums are guaranteed for the rest of your life. However, the option should be exercised no later than a certain age, and conversion premiums depend on your age at the time of conversion; so the earlier you convert, the better.
Think your options through before canceling an existing policy
Life insurance decisions should never be made in haste. You will probably be able to beat the rate on your existing policy by shopping around. Your family comes first, and you owe it to them to act responsibly, and make sure you are covered at all times.
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