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Home › Articles › Life Insurance › Life Insurance: Are You Covered?

Life Insurance: Are You Covered?

When and How to Refinance Your Life Insurance

By Melinda Copp

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Assess your Finances and Needs
Taking time each year to consider the ways your life has changed in the past 365 days will show you whether or not you need to consider refinancing.

"People should assess their life insurance needs at least once a year as part of any fiscal fitness examination," says Jack Dolan, the managing director of media relations at the American Council of Life Insurers. "And people should examine their life insurance needs at the time of a major life event, such as the birth of a child, when their taking on new financial responsibilities." If you bought a new house with a larger mortgage or if you had another child during that year, for example, then you might need more life insurance coverage.

"One rule of thumb is that a person should have coverage equaling 10 times their income," says Dolan. Needs also depend on whether or not other people are relying on you for income, if you need life insurance for estate planning purposes, and whether or not you want to leave a legacy at a school or charity. To get a better idea of your life insurance needs, try using the question and answer forms on life insurance company Web sites. These tools calculate your needs based on a number of factors.

However, unless your life has changed and your financial responsibilities have increased, you shouldn't need to refinance each year. Interest rates won't have likely changed enough to warrant it.

Consider What You're Giving Up
Refinancing your life isn't always an easy decision, and staying with your current policy has some benefits. First, when you get a new life insurance policy, you probably need another physical examination and health assessment. And almost every life insurance contract has two clauses that take two years to go into effect.

The first is the suicide clause. This clause means that once you've had your life insurance policy for two years, your company must pay the death benefit even if you commit suicide. And the second clause, the incontestable clause, states that once you've had your policy for two years the insurance company can't contest payment on the basis of any information you gave when you applied. Switching life insurance policies means you have to start the two years over.


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