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6 Risks of Changing Insurance Companies


If you're looking to lower monthly costs or add new plan benefits, consider these risks of changing insurance companies.

If you’re considering changing your insurance provider, it’s probably because you want to put yourself in a better place financially.

You might be thinking about a policy you no longer need. Or perhaps you want to update your coverage for new medical needs different driving habits, or your move to a new house.

These are understandable motivations. In fact, it’s a good practice to keep your health, safety and retirement goals front and center when reassessing your insurance coverage—whether it’s for a car, your home, or your very own life.

Weigh the Risks and Benefits

Yes, changing life insurance providers could help you boost an underperforming portfolio. It can help you find a more suitable plan for a change in income, assets, or expenses. A good life insurance agent may be able to help you find opportunities that better suit your needs.

But it’s important to know there are risks to changing life insurance providers. You could end up with a worse policy or avoid being approved for life insurance altogether. Switching providers could impact your premiums, coverage, and benefits. It’s a similar situation for home and auto insurance. Here are six risks to know before changing insurance providers.

1. Premiums and Terms

Premium prices generally increase as you age, so you may end up paying more by starting a policy with a new provider when you’re older. Consider the tax implications of different policies. You can consider switching to a term, whole life, or other life insurance policy with your current provider—but that too comes with its own pitfalls. Bear in mind this example. If you switch from a 30-year term life insurance policy to a 20-year term, you will likely decrease your premium. But you have also just shortened the term of your coverage by 10 years—and that could matter later in life.

2. Potential Coverage Gaps

Many companies use standard policy terms and offer many of the same coverage options. They may just be named something different, although some are actually different. This is where an insurance agent’s expertise may be able to help you. Make sure you have the same coverage on your new policy. If your coverage is changing, make sure you know how it's changing. Ultimately, you want to be comfortable with any changes.

Insurance companies update their policies often. Often the old policies have more inclusive coverage and better rates. Now take newer policies. They will often limit coverage for cosmetic damages to cars or homes. This is why it pays to explore providers’ ‘actual cash value’ policies. This explains what costs they will pay to replace or repair damaged vehicles and properties. Some insurers only cover costs, minus years of depreciation.

3. Loss of Loyalty and Claim Benefits

Here’s another risk to consider. You may have loyalty benefits like accident or claim forgiveness, with your current auto insurer. You may have earned some discounts due to your tenure. These perks may point you in the direction of staying with your current insurer. It might only make sense to change, if you are getting a vastly better quote for the same coverage, from a reputable insurer.

4. Penalties for Switching Again

Think about the time you’ve spent with your current insurer too. Most insurance carriers will ask you: how long have you been with your previous company? If it’s under 2 years, you’re unlikely to get the best rates. That’s because your tenure with your old insurer is a rating factor for many competitor insurers.

If you have been with your current company 10 years, that will help your rate when you are shopping. But bear this scenario in mind. Let’s say you don’t like your new insurer and want to switch again. This time, quotes will usually be higher because of the short tenure with the prior company you disliked. Be sure to read reviews about people’s experiences with insurers to make sure you’re certain before you switch.

5. Surrendering Retirement Savings

There is risk to changing your life insurance that many don't consider—especially those who are 50 and over. If you have used a life insurance policy to accumulate retirement savings but decides to surrender or cash out the policy too early, you can be penalized. You may be hit with a lower ‘surrender value—the amount you walk away with, compared to what you paid in. Using your life insurance for retirement savings is a long-term strategy to build wealth. Switching doesn’t sit well with that strategy.

6. Medical Exams and Hidden Clauses

Here’s another thing to consider about switching life insurance. You might have to go through a medical exam all over again. The results of this exam may affect your eligibility for new policies. Then there is something known as an ‘incontestability clause’. It means a provider can contest your death benefit during a policy’s first two years.

Should You Change Insurance Providers?

While it’s clear the main reasons of switching providers are to lower your premiums, expand coverage or benefits, it’s often not that simple. If you’re deadest on switching, just make sure the new plan shas the same benefits and provision compared to the old one. If it does not, understand why, as those differences are the likely reasons for a cheaper premium.

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