Insurance Carriers

How to Get Better Insurance Rates by Switching Providers

Purchasing life insurance from a provider may have been easy the first time around. After a period, you might decide to switch when your term life insurance is ending or when you realize there are better premium rates available in the market.

Switching providers can be tricky as you will need to buy a new policy or convert your prior policy. However, it can be worth the effort to switch companies and get a better deal as you can improve your policy and premium rates.

Types of life insurance

It’s important to understand the two main types of life insurance: term and whole (or permanent). Each is handled differently if you choose to switch.

Term insurance provides a death benefit for a fixed period. It has no cash accumulation, which keeps it less expensive. The process to switch providers is easier:

  • There is no penalty if you choose to terminate term insurance before its term is completed.
  • Life insurance companies will provide notice before a term life insurance is due to renew, allowing time to shop around for better rates.
  • Term insurance, in most cases, has an option to convert the policy into permanent insurance at the end of its term.
  • If you choose to convert your term insurance, it must be from your existing provider.
  • You need to buy new term or permanent insurance when switching providers.

Whole life insurance has a guaranteed rate of investment return on the cash value of the policy. It is expensive, and it’s more complex to switch providers.

  • If a whole life insurance policy is canceled in the early years, there is a cancellation fee, known as a surrender charge. The surrender charge only applies during the first 10 policy years and can vary depending on the issuing insurance company.
  • When changing from one permanent life insurance policy to another, your existing policy should be similar to the new policy and can be transferred via a 1035 exchange.
  • There are no tax penalties when switching term insurance, but there are tax concerns with whole life insurance.
  • By meeting the guidelines of Section 1035 of the IRS Code when converting a whole life insurance policy, it will be tax-free.
  • Not following the tax rules will result in penalties and unnecessary headaches.

“If you have a typical term life insurance policy or a policy without any cash value or gain, then there is no need to worry about adverse tax consequences of switching policies,” said Joel Ohman, a certified financial planner and founder of “However, if you have a permanent policy with built-in gains, then you will want to make sure you comply with the IRS 1035 exchange regulations so that you do not get hit with an unwanted and premature tax bill.”

The particulars of switching providers

To switch life insurance providers, requirements include “a new application, a medical exam … and updated medical records, said Jonda K. Lowe, author and retirement income specialist. It takes an average of 30 to 45 days but can take as long as 90 days for the new policy to be set in place. Keep in mind there is no cost for the new policy as the insurance companies usually pay for the underwriting.

The healthier you are, the lower the rates

When switching providers, you are required to take a medical exam. Most people tend to be less fit than when they purchased their original policy. By improving your overall health, you will qualify for better rates by:

  • Maintaining a better diet and losing weight if you need to.
  • Exercising more and improving your overall health and any conditions.
  • Avoiding bad habits such as smoking cigarettes or cigars.

“What typically happens is your five years older, so you won’t qualify for cheaper insurance,” said Darci Gutierrez, an independent life insurance agent. “Your best bet to getting a better rate is to improve any medical conditions such as diabetes or stop smoking to be eligible for better rates.”

How much can you save?

Here is an example of how much you might save by comparing providers. Gordon Conwell III, the owner of, looked at 13 providers for a 65-year-old male in excellent health. He was interested in purchasing a $1-million universal life policy. As shown in the table below provided by Conwell, the providers were compared by their annual cost of products: least to most expensive. As illustrated, it’s worth shopping around for providers. “Savings of $4,000 per year is something most people would take into serious consideration when deciding what is best for them,” Conwell says.

A few things to consider when switching providers:

  • Work with an insurance agent or an independent insurance agent who represents several life insurance companies to find the best products and services.
  • If you have whole life insurance, follow the tax guidelines.
  • Make sure switching providers is a financially good decision for you and your family.

A few things not to do when switching providers:

  • Do not take the health exam for granted.
  • Avoid switching providers without doing your homework for the best rates in the market.
  • Do not cancel your insurance policy before the new policy has been underwritten and approved.
  • Do not assume all providers are equal in financial strength. It’s always a good idea to check insurance companies before switching providers.

The bottom line

Switching life insurance providers and getting better rates can be tricky. To get the best savings, it’s in your best interest to work with an insurance professional, be ready to pass another medical exam and find the best providers and rates for your type of insurance. Once you undertake those tasks, the process of switching will be a breeze and the savings will follow.