Short answer
Switch life insurance companies by applying for the new policy first, letting it go in force, and only then canceling the old one, so you are never uninsured. Expect new underwriting at your current age and health, a fresh two-year contestability period, and a replacement form that the new insurer must file in most states.
Key takeaways
- Keep your current policy until the new one is approved, issued and in force.
- A new policy starts a new contestability period, commonly two years.
- Your new premium is based on your age and health today.
- A 1035 exchange can move cash value to a new policy without current income tax.
- Most states require written replacement notices to help you weigh the switch.
Why people switch life insurance companies
People switch for many reasons. Some want to pay less, while others need more or less coverage than they have. A policy bought years ago may no longer match your budget, your health or your family. Before you shop, write down what you want a new policy to do. That makes it easier to compare offers fairly.
- Your health has improved, or you quit tobacco
- Your universal life costs have gone up
- You want lifelong coverage in place of term
- You want to combine several small policies into one
- You are unhappy with your insurer's service
What you could give up by switching
A new policy is priced at your current age and health, so it may cost more than you expect. It also starts a new contestability period, commonly two years. During that time, the insurer can review your application and may deny a claim over wrong or missing answers. The suicide exclusion period usually starts over too.
Older permanent policies can have features you cannot buy today, such as higher guaranteed interest rates. Many permanent policies also charge surrender fees if you cancel in the early years. Ask your insurer for the current surrender value and an in-force illustration before you decide. An independent licensed agent can review your policy at no cost and show you what you would keep and what you would lose.
How to switch without a gap in coverage
The order of your steps matters most. Your current policy should stay active until the new one is fully in force. If you cancel first and the new insurer declines you or charges more than expected, you could end up with no coverage. Keep paying your current premiums the whole time you follow these steps.
- Gather your current policy, latest statement and a list of your goals.
- Compare offers for the type and amount of coverage you need.
- Apply and complete any health questions, records review or exam the insurer requires.
- Review the approval, including your rating class and premium, before you accept it.
- Sign any replacement forms, pay the first premium and accept delivery of the new policy.
- Once the new policy is in force, cancel the old one in writing or finish the 1035 exchange.
- Get written confirmation that the old policy has ended, and check the beneficiaries on the new one.
Moving cash value with a 1035 exchange
If your current policy is permanent coverage with cash value, cashing it out could mean income tax on any gain. Section 1035 of the federal tax code lets you move that value directly into a new life insurance policy or an annuity without paying tax on the gain at that time. The new insurer usually handles the transfer with your old insurer.
The insured person must stay the same, and the money should move directly between the insurers. A check made out to you can turn the exchange into a taxable surrender. An outstanding policy loan can also make part of the exchange taxable. Talk with a tax professional before you start, because each situation is different.
Replacement rules that protect you
Most states have rules for replacing one life insurance policy with another. Your agent usually must give you a written replacement notice, and the new insurer may notify your old insurer. Your old insurer may then contact you with options to keep your policy. These rules give you time and information to make a careful choice.
Every new policy also comes with a free look period, often 10 to 30 days depending on your state. Many states allow at least 30 days when a new policy replaces an existing one. During that time, you can usually return the policy for a full refund of the premium you paid. Read the new policy closely while your old one is still in force.
Frequently asked questions
Can I cancel my life insurance policy at any time?
Yes. As the owner, you can usually cancel at any time with a written request to your insurer. Term policies typically end with no payout, though some insurers refund premium you paid in advance. With a permanent policy, you receive the cash surrender value, which is your cash value minus any surrender fees and loans. Make sure your new coverage is in force first.
Does switching life insurance restart the contestability period?
Yes. Each new policy has its own contestability period, commonly two years from the issue date. During that time, the insurer can look closely at your application if you die and may deny a claim over wrong or missing answers. If your current policy is already past this period, factor that into your decision.
Should I convert my term policy instead of switching?
It depends on your health and your needs. Many term policies let you convert to permanent coverage with the same insurer without a medical exam. If your health has declined, converting may be easier than qualifying elsewhere. If you are in good health, a new policy from another company could cost less. Compare both before your conversion deadline passes.
How long does it take to switch life insurance companies?
It varies. A fully underwritten policy can take several weeks or longer, especially if the insurer needs medical records or an exam. Some no-exam policies are approved within days. A 1035 exchange can add time while the two insurers handle the paperwork. Keep paying your current policy until the switch is complete.
Can I switch life insurance if I have health problems?
Often, yes, though your health affects the price and your choices. A fully underwritten policy may cost more if you have health conditions. Simplified issue and guaranteed issue policies are easier to get. They often have lower coverage limits, and many guaranteed issue policies pay a limited benefit in the first two or three years. Keep your current coverage until you know your options.
Related guides
- Converting Term Life to Permanent Coverage: How It Works
- How Life Insurance Cash Value Works
- What Happens During a Free Life Insurance Policy Review
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