Life changes, (so can your life insurance)
When it comes to life insurance you determine the pay out amount, term length and policy type at the point of application.
But, as we know things in life change, so it’s important to review your policy regularly to make sure it still meets your needs.
But are you able to change your existing life insurance if your personal circumstances change?
Can you change your life insurance policy?
Some insurers now enable you to change your policy if your circumstances change.
This is called a special events clause, however, depending on the insurer, it can also be referred to as a guaranteed insurability option or policy increase option.
Please note: some life insurance policies do not allow you to make any changes.
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Why you may need to change your life insurance
There are many reasons why you may need to change your life insurance policy.
Commons reasons from our experience at Reassured include:
- Having a child
- Moving house/increasing your mortgage
- Getting married or entering into a civil partnership
- Getting divorced or separated
- Securing a new job.
How you can change your policy
You can change your life insurance policy in relation to:
- The cover amount
- The beneficiaries of your policy
- Some insurers allow you to divide a joint policy.
How much additional cover can you secure?
It’s common for you to be able to take out up to 50% of the original cover amount, up to £150,000.
Legal & General[1], for example, allow you to make three special events changes, (but just once for marriages and civil partnerships).
When you change your cover amount, either up or down, your monthly premiums will change accordingly.
Depending on your policy, age and insurer you may need to answer further medical questions to secure the additional cover.
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Can you change your policy term?
No. Unfortunately, you would have to take out a new policy if you needed to extend the length of your cover.
Remember, if you’ve had a child you’ll likely be financially responsible for them for at very least the next 18 years.
And when you consider the average cost of raising a child is £231,713[2] it’s clear financial protection would be needed if you were no longer around.
Whatsmore, if you were to buy a bigger house to accommodate your growing family, lengthening your mortgage term, you’ll also need to extend your life insurance.
Changing the beneficiaries of your life insurance
When you take out life insurance, any pay out forms part of your estate after you’re gone, along with your property and any savings.
Unless you write your life insurance in trust…
Writing your life insurance in trust means the proceeds don’t form part of your estate, resulting in three key benefits:
- Avoid or minimise 40% inheritance tax
- Avoid the probate process (for a faster pay out)
- Greater control of your policy, (who receives the money and when).
However, what if you need to change the beneficiaries of your policy. Perhaps you’ve got remarried or had more children.
Well, it depends…
If you have an absolute trust (sometimes known as a bare or fixed trust) these, unfortunately, can’t be changed.
However, if you write your policy into a flexible or discretionary trust the named beneficiaries can be amended at the discretion of the trustee/s.
For more information please see our life insurance in trust page.
If you haven’t written your life insurance in trust and want to change your beneficiaries you’ll need to amend your will.
If you don’t have a will then the pay out by default will usually go to your spouse and/or children.
Joint life insurance
Some insurers, such as Aviva and Legal & General allows you to split a joint policy if you become divorced.
This could negate the need to take out a new life insurance policy.
However, you’ll need to establish whether this divided policy meets your new needs.
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Can I take out more than one life insurance policy?
Yes, you can take out multiple policies, although this will obviously mean paying multiple premiums.
So, if your current insurer doesn’t allow you to make changes you have the option of an additional ‘top-up‘ policy.
For example, maybe you took out a £100,000 decreasing term policy when you purchased your first property.
However, since then you’ve got married, moved house and had a child. As a result, your existing policy no longer meets your needs.
You could then either take out a level term policy to bridge the coverage gap or perhaps look at a family income benefit policy to protect future living costs.
Maybe you want to look into critical illness cover to protect your family if you’re too ill to work.
Cancelling your life insurance policy
On occasions, it may be more beneficial to cancel your no longer suitable policy and take out a new policy.
However, one major factor to be aware of is your age…
If substantially older than when you took out your current policy, your premiums could be significantly higher.
In this scenario, it may make more sense to add an additional ‘top-up‘ policy.
Why not compare quotes (for free) and see if we can save you money each month on your premiums.
Changing your personal details on a policy
When you move home, change your contact details or name you’ll need to update your policy.
To do this, you’ll need to contact your insurer directly to make these amendments.
If you fall ill
If you fall ill you don’t need to change your policy, as the illness didn’t knowingly exist at the point of application.
You can still expect your loved ones to receive a pay out after you’re gone.
If your illness is terminal and you’re given less than 12 months to live, most policies will now pay out before your passing.
These proceeds can ensure you’re able to get all your finances in order and offer peace of mind.
Comparing quotes to secure your lowest premiums
We hope this article has helped answer some of your questions regarding changing life insurance.
If you’re requiring additional life insurance or critical illness cover we’re here to help.
We’ll compare the top insurers, providing you with your best quotes to choose from.
We can also help you with the application process and write your policy in trust, avoiding 40% inheritance tax.
And the best bit is our award-winning broker service is completely free to use.
Why not get in touch and secure your loved ones financial future?
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Sources:
[1] https://www.legalandgeneral.com/life-cover/life-insurance/additional-benefits/making-changes-to-your-policy/
[2] https://themoneycharity.org.uk/money-statistics/51592/