Consumer Counselor
Insurance Information for Michigan Consumers
[FIS-PUB 0212] Michigan Department of Insurance and Financial Services | 877-999-6442 | www.Michigan.gov/DIFS [11/19]
Understanding Life Insurance
Should You Purchase, Change, or Cancel a Policy?
What is life insurance?
Life insurance is protection against economic loss
when a person loses the ability to earn an
income. It is an important part of financial
planning. Certain qualifications have to be met
prior to approval. Once approved, the insured
agrees to pay a premium in exchange for the
insurance company paying a stated amount to a
beneficiary upon death.
There are two basic types of life insurance:
1. Term Insurance: An insurance policy that
provides coverage for a specific number of
years and pays a death benefit.
2. Permanent Insurance: Commonly refers to
Whole Life insurance. An insurance policy
that provides coverage and builds a cash
value over your lifetime and pays a death
benefit.
Who needs life insurance?
People carry life insurance for several reasons
and the need for life insurance varies with your
age and responsibilities. If you were to die, a life
insurance policy replaces income while your
survivors or dependents try to secure
employment, and pay the following expenses,
among other things: outstanding monthly bills,
burial expenses, medical expenses, and estate
taxes.
Tips on Buying Life Insurance:
Choose an insurance agent and company
you feel confident in to meet your
personal insurance needs.
Determine how much life insurance you
need, the duration, and how much you
can afford.
Pick the type of policy that is best for you
by educating yourself on life insurance
and asking your agent questions.
Review the insurance application for
accuracy before you sign it.
Make an informed decision and only
purchase life insurance if you intend to
commit to the duration of the policy. Early
termination can be very costly.
Make the check payable to the insurance
company, not the agent.
Ask your insurance agent about returning
a policy and the free look period as
required by Michigan law.
What you need to know before you cancel
your old policy:
Unlike home and auto insurance, life insurance
can involve waiting periods, surrender fees, tax
implications on cash value policies, and other
complexities. As a consumer, you will need to
make informed decisions when changing or
replacing your current life insurance policy.
It can be to your disadvantage to cancel or
change your existing life insurance as you may
incur additional expenses in the early years of the
new policy which will significantly lower its cash
value.
The expenses may include any costs associated
with the issuing of a new policy such as the
agent’s commission, the administrative cost of
producing and delivering the policy and the cost
of setting up the new account on the company’s
computer system. Make sure any money you may
save on a new policy exceeds any potential
upfront costs associated with a new policy.
[FIS-PUB 0212] Michigan Department of Insurance and Financial Services | 877-999-6442 | www.Michigan.gov/DIFS [11/19]
Also, you may lose benefits
during the first two
years with a new policy. A company can deny a
claim during the first two years if it can be shown
that you withheld information from your
application which was important to the decision
whether to insure you. This is called the
contestable period.
If you change policies, you
must go through the two-year contestable period
again.
Additionally, you may pay higher rates on the new
policy because you are older than you were when
you purchased your original policy and life
insurance rates are based on your current age.
Or, if your health has worsened, premiums on
your new policy may be significantly higher or you
may even be denied coverage.
Life insurance replacement tips:
Do not cancel your current policy if you decide to
apply for a new policy. It is important to make
sure you are approved for the new policy and
want to accept all the terms of coverage before
cancelling your current policy.
Take the time to review the new policy, once it is
approved and in effect, to make sure it meets
your needs before you cancel your old policy.
Amending the terms of your existing insurance
coverage may save you time and money. This
option may be more favorable to you than a new
policy from another company.
Verify the coverage level of the new policy you
are considering to make sure it is appropriate for
your needs.
Ask your insurance agent for an illustration, if you
are undecided about replacing your old policy,
which will show you current policy performance
and future projected benefits.
Do you have insurance policy questions?
If you have questions about your life insurance
policy, first contact your insurance agent or
company. If you have any questions that your
agent cannot answer, contact the Department of
Insurance and Financial Services (DIFS) for
assistance at the address below. DIFS is the
state government department that regulates
insurance in Michigan.
About DIFS
The mission of the Michigan Department of
Insurance and Financial Services is to ensure
access to safe and secure insurance and
financial services fundamental for the opportunity,
security and success of Michigan residents, while
fostering economic growth and sustainability in
both industries. In addition, the Department
provides consumer protection, outreach, and
financial literacy and education services to
Michigan citizens. For more information please
contact DIFS at 877-999-6442 or visit
www.michigan.gov/DIFS
