Can I Reduce My Life Insurance Amount Without Buying A New Policy?
In most cases the answer is YES! Let’s say that 4 years ago you purchased a $1,500,000 term life insurance policy with a 20 year guaranteed level premium term period. In reviewing your assets and liabilities today, you realize that you no longer need the full $1,500,000 of coverage to meet your original income replacement, education and liability needs.
Calculating that you only need to maintain $800,000 of life insurance coverage, what do you do? Calculate the cost of reducing the face amount of your existing policy. In the example above, the existing policy costs $1,630 per year (including a $60.00 annual policy fee).
To calculate your current cost per $1,000 of coverage Take the existing outlay of $1,630 and subtract the $60 policy fee for a actual insurance cost of $1,570.00 per year. Then divide the $1,570 by 1,500 (number of $1000’s of insurance) and you get an annual cost per $1,000 of insurance of $1.05.
That means that reducing your $1,500,000 to $800,000 would result in a new cost of $900.00 per year. This is calculated by taking the cost per $1,000 - $1.05 then multiplying it by 800 ($800,000) and then adding the annual policy fee of $60.00 ($1.05 X 800 = $840 + $60 = $900.)
If this revised number works for you, you’ll need to complete and sign a policy change form from your life insurance company - no medical evidence is needed. Once the company processes your change they will notify you of the change and advise you of the effective date of the new coverage amount and reduced premium.
However, based on the dramatic decline in term life insurance rates over the past decade, and assuming your health status has not changed for the worst -before reducing your existing policy go online and get some current term life insurance quotes. Compare prices and find your best buy for the amount of life insurance you need.
There is one caveat: Most term life insurance policies are priced based a minimum policy face amount (i.e. 100,000, 250,000, 1,000,000 etc.) Generally, you will not be allowed to reduce your coverage amount below your particular policy’s minimum face amount.
