Decreasing Life Insurance Quotes – Clients often contact us to purchase policies that will reduce coverage as they age. By reducing your life insurance policy, you can customize your death benefit to fit your needs.
If you need life insurance to cover debt reduction such as a mortgage, small business loan, or divorce decree; This strategy can save you a significant amount of money.
Decreasing Life Insurance Quotes
This informed guide provides a brief overview of reduced coverage life insurance and the benefits it provides. We’ve also included real-world examples to illustrate the potential savings this strategy can provide.
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Some insurance companies offer traditional life insurance with a lower death benefit. With these policies, the insured has the option to modify coverage upon old age. Reducing the amount of coverage you carry will also reduce the cost of your policy.
If you decide not to reduce your coverage, your policy rates will remain the same regardless of your health or age. Once a term life insurance policy is insured, the rate category and coverage costs remain constant for the entire term.
Purchasing a term insurance policy with a reduced death benefit provides flexibility to the insured, especially if they have a fixed income. This strategy is also cheaper than purchasing a new policy as you get older and need less life insurance protection.
The first step is to determine your current coverage needs. To do this, you will need to consider the number of years that life insurance should cover. For example, if your business loan term is 15 years, you will need to choose a 15-year term to match or exceed your financial obligations.
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You should also purchase a policy with a death benefit large enough to cover your debts. As your loan balance decreases with overtime, you can reduce your life insurance coverage to match your loan balance. This eliminates the need for guarantees and prevents over-insurance.
It is also important to note that only a few major insurance companies offer policies with diminishing death benefits. This is why it is so important to work with an independent agent who represents at least some of the providers.
The most important benefit of downgrading a life insurance policy is flexibility. Being able to lower your coverage can save you money as your financial liabilities decrease. They also provide a safety net to adjust your coverage if all of your policies don’t fit your budget in retirement.
Another benefit offered by term life insurance is a fixed premium. Once your policy is insured, your “risk category” cannot change, even if your health improves. Your rate also depends on how old you are when you buy your policy.
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For example: Let’s say you buy a $500,000 policy with a “preferred” rate when you turn 50. If you decide to drop your coverage to $350,000 after four years, your premium will remain the same $350,000. A 50-year health “preferred” policy. With some life insurance companies, reducing coverage is as easy as calling and signing a form. However, as mentioned earlier, most life insurance companies do not offer this option. Some providers also allow you to reduce the number of policy faces to just one time.
In addition to these carrier-specific limits, most life insurance companies have a waiting period of up to three years before allowing you to modify your coverage. Many providers also require a minimum death benefit of $100,000.
These variables can make it difficult to find the best insurance policy for your needs, especially if your agent only represents a few insurance companies. At JRC, we work with over 50 highly rated providers to ensure our customers always have the best options.
Just last year we worked with a 54-year-old client named John. She is going through a divorce and the court has ordered her to purchase a life insurance policy. According to the terms of the divorce decree, John needs $600,000 in life insurance, or enough coverage to support his ex-wife for ten years.
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John has little debt and no dependents. Each year that passes, the amount of support that must be paid to the ex-wife will be reduced by $60,000. With no actual coverage required (aside from a divorce decree), John was the perfect candidate for this policy. Which allows them to reduce their coverage each year.
As a tobacco user, John’s rates are two to three times higher than non-smokers, so he wants to save as much as possible. By being able to reduce the amount of coverage each year, John will save about 40% on life insurance costs over the next 10 years.
Having the option to reduce coverage allows John to stay in line with the court without overspending. Each year, your life insurance premium will continue to decrease until your divorce judgment is finalized. The company John recommended is MetLife also known as Brighthouse Financial. It is rated A+ (superior) by AM Best and was founded more than 150 years ago in 1868. John’s policy allows him to reduce the amount of coverage he takes out each year, if necessary.
Below are the actual rates for John’s life insurance policy as a cigarette smoker. Please note: If you use tobacco, but don’t smoke, you can get non-smoking rates from companies like Prudential. To learn more, see our article for tobacco users here.
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If for some reason John didn’t reduce coverage every year, the total cost of the policy over ten years would be about $39,720. By subtracting the face amount from the policy, it is the total cost to John of meeting his life insurance obligations for the divorce. The decree is $23,424,
By reducing the number of life insurance policies each year, John will save more than $16,000 in coverage costs. It is also important to note that if John were not a cigarette smoker, his rates would be at least 65% to 75% lower than the rates shown above.
If you are considered “high risk” for life insurance, a reduced term policy may be beneficial. The table below shows the cost of a similar term life insurance policy for a non-smoker.
If it is worth noting that John had not been a smoker and been as healthy, he would have saved approximately $4,116 on life insurance. If you have certain health problems, or if you are a smoker, reducing your life insurance coverage may be more beneficial than if you are healthy.
What Is Life Insurance And What Does It Cover?
Reduced life insurance policies are suitable for insuring SBA loans, business loans, and debt reduction such as mortgages or divorce decrees. An impairment life insurance policy can also provide an emergency resource if purchased by the primary breadwinner of the family.
On the other hand, reducing the amount of life insurance coverage may not be suitable for everyone. If you have dependents who depend on your income, and your life insurance policy is affordable, you may want to consider additional duties. By waiving escrows, any life insurance coverage in excess of what you owe can now be transferred to anyone you choose. It’s important to remember that you’re not required to reduce the death benefit provided by your policy, but it’s a good idea to have that option. Especially if you’re thinking about reducing your coverage in the future. If someone is financially dependent on you, you can also provide additional coverage with additional fees.
This person could be a child, spouse, business partner, or family member who has an insurable interest. Setting up a collateral assignment is as easy as signing a form and submitting it to your insurance company. Your agent can also help you when purchasing your policy.
Here’s an example: Let’s say you purchased $400,000 worth of life insurance to protect your mortgage. When you pay off your loan, the life insurance amount you carry will exceed your balance. This excess coverage can be provided with a guarantee for your spouse or children. Remember, if you decide not to reduce your coverage, you are not obligated to do so, but having the option to do so may not be worth it in the future. If your financial situation changes, or if you retire on a fixed income, the ability to reduce your policy affordability can prevent you from losing coverage completely.
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Note that some life insurance policies do not offer an option to reduce coverage. For example, insurance giant AIG does not offer policy discounts. So, if you need to change coverage, and you have one of these condition policies, you may be covered.
This is a common scenario for people experiencing changes in their financial circumstances during retirement. In some extreme cases, some people are forced to lose their life insurance policies.
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