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Can I Downgrade My Life Insurance?

While it’s more common for people to increase their plan coverage, there are some situations that warrant a downgrade. In fact, many don’t know the option exists and instead they cancel plans or even opt for a new life insurance company when sifting through their options. I

t’s important for you and your loved ones to understand your options when it comes to altering your life insurance policy, including when to downgrade and why downgrading a life insurance policy makes sense.

What Does It Mean to Downgrade a Life Insurance Policy

There may come a time when your life insurance policy provides more coverage than you actually need. This can be due to various reasons and varies based on your lifestyle. It is possible to downgrade your policy, but the process will depend on the life insurance policy you have.

There may be limitations set up by your life insurance company that will only allow downgrading a certain dollar amount or percentage during a certain timeframe. In the end, it may come as a surprise just how often you need to adjust your plan, including downgrading.

When to Downgrade a Life Insurance Policy

It’s best to revisit your life insurance policy after major life events or default to an annual check-in on the status of that policy. With regular check-ins, you’re more likely to realize that the coverage you currently carry is excessive. Instances when this might happen to include:

  • A divorce or partner separation
  • Losing a job
  • Reduction in assets
  • Unaffordable premiums
  • Death of beneficiary

Each of these situations, and many others, present the case for a reduction in coverage.

How to Downgrade Life Insurance

The downgrading process should not be too difficult to complete. If you’re young or someone with constantly changing needs, choosing an adaptable company from the beginning is best. This way, changing policies and the process for that are clearly outlined.

The first step is to reach out to the provider and express intent. From there, they can help navigate the next steps. In some cases, they may be able to do a simple switch online, while other companies will help to cancel the standing policy and open a new one with reduced coverage.

Things to Keep in Mind When Reducing Coverage

At a glance, reducing coverage can seem like a great idea, but there are a few things to keep in mind.

  • Rates Can Vary: Despite reducing the coverage amount in hopes of lowering your premium, there is not always a direct transition. For example, if paying $300 a month is too much for a $500,000  policy, don’t assume that dropping to a $250,000 policy amount will mean a $150 monthly premium. The new rate may be just as high as the old one for less coverage, depending  on  a number of factors.
  • A New Policy: As mentioned above, it’s not always a quick fix to downgrade coverage. The process may require new medical exams and paperwork as one essentially applies for a life insurance policy again. This means updating estate planning and tying up new policies related to the switch.

The Bottom Line

When an initial life insurance policy becomes too much, downgrading the policy can be a great choice. Not only can your new policy be adapted to fit updated life circumstances, but the change can also ease a financial burden. While it’s not always a clean switch, it’s important to speak with a life insurance company for your options and guidance on the next steps.