In many ways, the life insurance policy you initially purchase is not set in stone. Many situations change, so their coverage needs to be flexible to reflect these changes.
In this article, we look at a few of how your existing coverage can be adjusted to suit certain developments in your life.
5 Ways To Modify Your Life Insurance Policy
Extend Your Coverage
It may be possible to extend the amount or time for which you are covered.
The former change might be made when the expenses your family members are likely to face following your death are determined to be greater than the amount that was calculated when you first took out your policy if debt continues to rise over the years.
The latter is often made to cover new debts that are likely to take longer to pay off.
Convert from Term to Whole Life
If you have a term-based life insurance policy, you may decide to retain it and arrange for it to be converted to whole life once its set period of coverage comes to an end.
Not all policies are convertible, so it is certainly worth discussing this matter with your provider to check whether this is possible.
You may wish to change the beneficiaries named on your policy if there are new arrivals in the family (say you get married or have a child) or if anyone passes away. Virtually all life insurance policies will permit you to do this.
You may decide to adjust your premiums or change your period of coverage when you purchase a new property.
These changes should reflect whether the mortgage on this property is larger or smaller than on your last one and whether the terms cover a longer or shorter period.
Modified Endowment Contracts
If the cumulative premiums of your life insurance policy exceed federal tax law limits, it may be reclassified as a Modified Endowment Contract or MEC. It is worth noting that there are very strict regulations regarding the taxation of modified endowment contracts.
For example, all loans and withdrawals relating to a contract of this kind are taxed on a last-in, first-out basis.
Additionally, policyholders under the age of 59 ½ who wish to make an early withdrawal must pay a 10% penalty. However, the death benefit to be paid out from a MEC is free from probate.
You can easily research looking into adding a modified endowment contract online. If you decide to do so, be sure that you fully understand the implications of this kind of reclassification, as the action cannot be reversed once undertaken.
Before you decide to make any changes regarding your current policy, it is vital that you discuss the options available with your insurance provider.
This way, you will be able to determine the steps that must be taken in order to make these changes. You may also receive advice and guidance regarding any other adjustments that may be available to you.