Life comes at you pretty fast. You get married, buy a house, have a kid, get the dog you always wanted, and buy a life insurance policy to protect the life you’ve built. Everything is perfect, everything is protected, and you’re sitting back, feeling financially comfortable.
But life keeps happening, and everything gets shaken up sooner or later. You might get a promotion, or move into a more expensive neighborhood, or decide to have a second kid, or downsize your home, or start a business. If you’re using life insurance to replace your income and protect the most important parts of your life, your old policy might not be giving you the coverage you really need anymore.
» Calculate: Life insurance needs calculator
If you’re shopping around for your second life insurance policy, you might feel like an old pro. Just take the phone call, schedule your physical, sign a few forms, answer a few questions, and wait for the gears of the life insurance industry to crank out your policy.
However, there are a few things that change between buying your first policy and your second, which can cause a bit of added confusion for second-time buyers. We wanted to clear up some of these issues and get you back on the road to improving your life insurance coverage.
Will I be able to get the same price as before?
Life insurance prices are based around a person’s risk of dying. Every year poses the risk of us developing health problems, getting into accidents, and creeping towards old age. To reflect the increasing risk of covering an older person, the price of life insurance goes up incrementally every year past a certain age, typically around 35.
If you didn’t shop around for life insurance when you bought your first policy, you might be able to get better rates on your second policy. This is because life insurance isn’t a one-size-fits-all product, and your original carrier might not have had the best rates for your specific lifestyle and health situation.
This is a rare case, though, and it’s far more likely that your rates will increase. The price increase is relatively slow if you’ve maintained your health, but costs can jump dramatically if you’ve developed a health condition in the time since getting your original policy.
There are a few things that change between buying your first policy and your second, which can cause a bit of added confusion for second-time buyers
Will I need another medical exam?
Yes, you will, if you don’t choose an exam-free policy.
In general, it’s difficult to use a single medical exam to apply for multiple life insurance policies outside of very specific situations. If you’re applying for multiple policies through a single life insurance company, they might be able to use an old medical exam for your new policy.
The cutoff for re-using your medical exam varies based on the company’s guidelines. Generally, if it’s been more than 6 months since your last medical exam, you’re going to need a new exam for your new policy, even if you’re applying with the same company as before. If you’re applying for policies with two different companies, the restrictions are even tighter.
Not every company’s medical exam collects the same data. Imagine that you got an exam for one carrier, then immediately decided to switch your application over to another carrier. The new carrier would only be able to use your old exam if it came from the same examination company they use, and if it collected all the data they need for their new underwriting, and if it’s easy for that information to be passed from the old company to your new company.
As you can imagine, that kind of coordination rarely happens, so most life insurance companies will choose to avoid the hassle on their end and insist on a fresh medical exam.
There are a few life insurance companies that offer coverage without needing an exam to people who qualify for it, so if you really want to avoid a second exam, you should look for one of them. If you run a life insurance quote with us and you qualify for a no-exam option, we’ll let you know.
What’s the best way to reduce my coverage amount?
If your previous policy is too large and you want less coverage, it’s often better for you to replace your existing policy with a new one that better matches your needs. However, depending on your health and lifestyle, you may find yourself in a situation where keeping your old, larger policy makes more sense.
For example, let’s say you bought a 30-year policy with $1 million in coverage at age 30. Your policy’s price is probably around $56/month for men or $47/month for women, if you’re at perfect health and getting “Preferred Plus” rates on coverage.
Fast forward 20 years. You’ve downsized a bit and are looking to save some money by switching to less coverage. Instead of keeping your $1M policy for its final 10 years, you might only want a 10-year $500,000 policy to protect your income until age 60.
If you want to reduce your coverage to a fresh 10-year $500k policy at age 50, your price would be around $46/month for men and $36/month for women, assuming you’re still in perfect health 20 years later.
Even if you haven’t had any medical issues crop up since you turned 30, that’s still only a savings of $10 per month for half a million less in coverage. It’s more likely that you’d end up having a health issue or two by age 50 and end up dropping from “Preferred Plus” to “Standard” rates. A 10-year $500k policy at standard rates would cost you upwards of $86/month for men or $68/month for women.
In this example, it’s actually less expensive to keep your existing $1M policy if you still want life insurance coverage.
» Compare: Term life insurance quotes
What’s the best way to add additional coverage?
Following the logic of our previous example, it makes sense that policies get more expensive as you age. This means that when you’re looking to add more coverage, it often makes sense to purchase additional coverage rather than completely replacing your old policy.
However, that’s still not always the case.
For example, let’s say that you bought a 30-year $500,000 term life insurance policy at age 30. The price of that policy is around $32/month for a healthy male applicant, and around $27/month for a healthy female applicant. Your current coverage will last you until age 60.
Now, imagine you’re 40 years old. You still want coverage until age 60, but you’re making more money now, and you want to bump it up to $1 million in life insurance. You’ve got two options: add a 20-year, $500,000 policy to your existing coverage, or replace your old policy with a new 20-year $1 million policy.
Assuming you’re still in perfect health, the math is actually pretty easy. A 20-year $500k policy at age 40 is roughly the same price as a 30-year $500k policy at age 30. Adding an extra 20-year $500k policy would bring your total to $64/month for men, or $54/month for women.
For people in perfect health, replacing your existing coverage with a new 20-year $1M policy would cost $57/month for men and $46/month for women.
In this example, it would make more financial sense to replace your old policy with a new one, but this isn’t always the case. However, if you’ve had a health issue in the ten years since getting your original policy, it will almost certainly be more expensive to replace your old $500k policy with a new $1M policy.
For example, if you got your first policy in perfect health, you’d receive preferred plus rates: around $32/month for a healthy male applicant, and around $27/month for a healthy female applicant.
If you have had a few minor health issues in your 30s, however, it’s not uncommon to get evaluated at a standard risk class at age 40, which will raise your prices.
At standard rates, an additional 20-year $500k policy would cost $57/month for men and $45/month for women. This brings their total monthly price to $89/month and $72/month for men and women, respectively, if they decide to add additional coverage.
At standard rates for the new 20-year $1M policy, the monthly cost is $104/month for men and $84/month for women. This means that if health issues prevent you from getting best-class rates on your second application, adding the new coverage instead of replacing your policy would save you around $11/month for men, and $12/month for women.
Getting life insurance to protect your family might be familiar to you, but going into a new application without an expert in your corner might cost you in the long run.
Our agents have helped many people find the right coverage, and we’d be happy to help you figure out how to change your life insurance strategy to match your life.
About the writer
Eric started in Quotacy's sales department, but moved to marketing after helping hundreds of people through their life insurance buying journey. Aside from writing about buying life insurance, he also edits Quotacy's monthly newsletter, runs our YouTube channel and produces Real Life, our podcast. Eric lives in Minneapolis, where his coworkers are trying to convince him to take his humor into the spotlight. Connect with him on LinkedIn.