That depends on your needs. A person’s needs change over time. Most term life insurance policies have a premium that increases each year after the initial guaranteed level term period. If you are nearing the end of your initial term period and want to lock in a rate that won’t change for another predetermined number of years, it might benefit you to apply for a new policy and replace, or surrender, the old one.
Best practices when it comes to replacement:
1) Always apply for and secure the new policy before canceling the old one, as some people find they are no longer insurable while applying for a new policy. For instance, changes in your health since the last time you applied for a life insurance policy might make it more challenging to obtain a new policy.
2) If you already have a policy, it’s necessary to indicate how much coverage you have and what company it is with, along with whether you intend to replace your current policy. Individuals can normally get up to 20 times their annual income for a total coverage amount. If you replace your current policy, the new company will not consider that coverage amount as being part of your total coverage amount. If you are keeping your current policy, it will be included in the calculation.
Example: A person who makes $50,000 per year can get up to $1,000,000 of life insurance. If that person already has a $500,000 policy and wishes to keep it, he or she will only qualify for another $500,000 policy, as the two will total $1 million of coverage. If, on the other hand, that person wants to replace the current policy for $500,000, then he or she can apply for $1,000,000 of coverage with the new carrier.
3) Most insurance companies are not concerned about your group life insurance coverage through work, as those plans are usually not portable. This means that most group term coverage cannot go with you if/when you leave that employer. So, when you are asked about your current coverage on the application, they want to know about the policies you’ve taken out on yourself, not about your group coverage of 1 – 10 times your annual salary at work.
Replacements in the state of New York:
If you live in the state of New York, there’s an additional process to go through called Regulation 60 any time you replace a policy or begin a new policy within 6 months of canceling an old policy. This can delay approval of the new policy for up to a month or so, as the new carrier has to notify the old carrier of your intentions to replace the policy you have with the old insurance company. All states have replacement procedures much like this, but the state of New York has an additional paperwork procedure to be sure all parties understand your intentions. This is done as an added consumer protection. It’s basically just an extra “hoop” to jump through with regard to replacing life insurance policies, only in the state of New York.