Can You Change Life Insurance Providers?

Don't consider switching life insurance carriers without reading this.

For consumers who buy life insurance, policies are usually in effect for a very long time. For example, a term life insurance policy might have a coverage term of 20 or 30 years. The policyholder keeps paying premiums for all those years, and the insurer pays out the death benefit if the policyholder dies during the coverage term.

However, some people who purchased life insurance decide they are not happy with the carrier they have. Perhaps they receive poor customer service, the premiums become too expensive, or for a variety of other reasons.

Whatever the issue, there may come a time when a policyholder wants to switch life insurance providers. But this may not be as easy as it seems -- and it may not be advisable.

Here's why switching life insurers can be a challenge

Changing to a different life insurance provider is not the same thing as changing other types of insurance. For example, it's typically pretty easy to buy new car insurance, often for a more affordable price after shopping around.

That's because a driver's eligibility usually doesn't change dramatically over time, except in rare cases such as when an accident has happened and the driver's current insurer isn't counting it against them due to accident forgiveness coverage but other carriers would factor in the crash when setting rates.

With life insurance, a person's age at the time they buy coverage can play a big role in how much a policy costs. Younger people present less risk to an insurer of dying during the coverage term. If a policyholder bought life insurance a decade ago and now wants to switch carriers, the new policy would almost assuredly cost more due to their advanced age.

Health status also affects the cost of life insurance. If a person bought a policy and then developed a pre-existing condition, changing to a new insurer might be difficult or impossible. The new insurer would likely require medical underwriting, which means the policyholder would need to provide health details and might need to undergo a medical exam.

If the policyholder's health status has deteriorated at all since first buying coverage, switching to a new insurer and getting new coverage could be a lot more expensive if it is even possible at all. The existing insurer can't raise premiums during the coverage term despite these health changes, but a new insurer could -- and would -- take them into account when deciding whether to offer coverage.

The contestability period resets

Although state laws differ, life insurers typically have a period of around two years after a policy is in effect when they can go back and contest eligibility by reviewing the terms of the initial application. After that time, they may not be able to challenge a claim on the policy.

Buying new life insurance would, of course, reset this contestability period so it could increase the chances loved ones might not receive the promised death benefit if a claim must be made within the first few years of coverage.

Some insurers also have a waiting period before the full death benefit is paid out, which would also be reset.

Because of these risks, coupled with the likelihood insurance would cost more later, most people shouldn't change life insurance providers. Instead, it's best to shop around and get the right coverage when first buying insurance in order to make sure the policy is the right one for years to come.