This video is to share about;

1. Why you should not let your existing policy lapse?
2. The reasons of getting the wrong policy
3. How can you restructure your policies to suit the current needs.

It’s not always advisable to replace an existing insurance policy with a new one specially if you’ve already paid for it for four, five, seven, or ten years. It’s also not advisable to let your policy lapse. But, what if you discovered that you’ve made the wrong decision and would like to reconcile your insurance policy? What’s the catch and how can you correct the policy while minimizing the cost and the risk?

First of, why shouldn’t you let your old policy lapse?

1. Your policy is based on your younger age – This means that the policy’s premium is cheaper than if you buy the exact same policy now.

So, if you’re buying a policy with the same benefit as your old one, then you’ll definitely be paying a larger premium unless you buy a different kind of policy.

2. The commission structure paid to the insurance agent of the life insurance company – Most life insurance companies only pay for the first six years, which means the agent is getting his/her commission only for the first six years. Insurance agents are paid upfront for the first five or six years, but they have to serve you for the rest of your life.

Because part of the premium goes to commission, your policy doesn’t have much cash value in its first six years. Normally, the break even point will be at around eleven to thirteen years if it’s a participating whole life policy.

Ways to Change Your Insurance Policy:

So, let’s say you terminate the policy after seven years? What does it mean? It doesn’t matter for the agent because he/she is not getting a commission after six years. So, the agent doesn’t have to serve you anymore and your policy has lapsed, it’s not like you’re doing anything to benefit yourself.

But, what if you found out that you bought the wrong policy? Let’s say you want to get a tax deduction for education. You can get a tax relief if you’re buying an education policy, which is a kind a kind of endowment policy.

What if the agent sold you a whole life policy?

You, then, realize that you can’t claim tax and the policy doesn’t serve your purpose. You want to save for your child’s education, but a whole life policy is just a protection plan. So, this is, obviously, a wrong decision and you might want to switch policies because of this. Maybe, before jumping into any decision, you can find the best policy at this link.

1. If your policy is within fourteen days, most insurance companies have a free look period. This means that after you’ve got the policy (the date you receive the policy and not the policy enforce date) they give you fourteen days to actually read the policy. You can then ask to change it or ask for a refund from the insurance company.

2. Sometimes you realize that you’ve bought the wrong policy a few months later. It might be because the policy wasn’t delivered to you on time or a variety of other reasons.

So, depending on the date you signed the “Receipt of Policy” statement, you can check if you’re still eligible for a refund.

Also, depending on the insurance company’s policies, they may allow you to switch from one policy to another within the first year, but this is quite hard.

3. Another option is to let your policy lapse and get back whatever cash value you want.

4. You may also not want your policy to lapse. You can continue it and extend it without paying any premium. This is called an “extended term insurance.” This means that you convert the policy from a whole life insurance in to an extended term insurance. This way, you don’t have to pay any more money, but the policy will be reduced to a sum that is much lower because you’re no longer paying the same premium. This is only for a limited time, around five to ten years, or something.

So, if you want to switch your current insurance policy to another, these are the options you can look in to.

Watch the webinar below for the answered questions about various personal finance topics.


KCLau
KCLau

Personal finance author and trainer

    6 replies to "Find Out Whether You Should Replace Your Existing Insurance Policy"

    • […] I hope this story can be inspire you on the importance of getting yourself and your loved ones insured. […]

    • Jin

      Hi KC,

      Been a silent reader of your blogs for many years. Just want to check your opinion on some insurance stuff.

      My agent calls me up after 6 years of me servicing my insurance policy and asks me to switch to newer versions of the insurance policy(life and medical card) which has got no annual limits, higher maximum claims, non claim bonuses on hospitalization beds. My current insurance policy has got a RM150K annual limit. All sounds good until I learn that the premiums is RM 150 more expensive per month. Currently I am servicing RM 250 per month on premiums. The insurance policy i’m currently having is investment linked one.

      i can’t tell whether the agent is being sincere

      • KCLau

        You can upgrade your existing Inv-linked plan to replace the old medical riders. And yes, normally premium topup is required since the riders are more expensive due to more coverage and age increment.

        • Teh

          Hi KC,

          I’m having the same situation as JIN. My current policy is 8years old. If i were to upgrade the policy, will it reset my current premium allocation? Can you share with us, how’s the premium allocation when we opt for policy upgrade.

          • KCLau

            only the top up premium portion will have commission paid to agents.

    • […] This “Loading” can be up to 35% of the regular insurance price. Each company has their own rules. Overall however, you can say that the older the car the higher the loading. Drivers between 18-23 years of age are also loaded. So how can you save? […]

Leave a Reply

Your email address will not be published.