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Are you frustrated with the high cost of life insurance premiums?   You probably already know that life insurance policies that build up cash value (e.g. whole life policies and universal life policies) have annual premiums that cost much more than term life insurance. For cash value policies which you purchased several years ago, I suggest that you reevaluate them, first by getting the help of a financial advisor to determine whether it makes sense in your current financial circumstances, present health, and current family situation to trade in your cash value policy for a much less expensive term life policy.   You may be able to save hundreds, and perhaps thousands, of dollars per year.   Perhaps, you should use some of the savings to buy more coverage if warranted.

If you have a term life insurance policy and if your health has not worsened significantly since you purchased it, you may be able to save money by exchanging it for a different policy with another company.   Term life insurance costs have been declining over the last several years, as a result of certain developments in the insurance industry including intense competition.   For example, if five years ago you bought a 20-year guaranteed term life insurance policy and are paying $3,000 per year in premiums, you may be able to replace it with a 15-year guaranteed term policy that costs $2,000 per year, saving $1,000 per year, without jeopardizing protection.   I have helped several people make profitable exchanges of policies, including for relatives, friends and my own policy.    Often, it is an opportunity to get additional coverage or stretch out the guarantee time with some of the cost savings.   In another actual recent example, for a 65-year-old client's $500,000 term life insurance policy, the ten-year guarantee term was expiring in two years in July 2008.   The annual premium was scheduled to skyrocket from $1,925 to $37,270, a prohibitive amount.   Rather than taking the chance of waiting until 2008, and trying to replace the policy then, when the client's health may not be as good as today, he decided to replace it now.   It turned out that based on an examination for the new policy and his health records, his health was as good as it was when the old policy was issued in 1998.   The new policy was then issued with an annual premium of only $2,613, resulting in a minor additional annual cost of $688 for the next two years but a very substantial savings for the eight years after that.   My client was very pleased with the outcome and could now rest easy that his beneficiaries would be protected at least for ten more years.

Here is a summary of the five steps in replacing term life insurance policy with a less expensive one, as described in more detail in a videoclip on www.lifeandmoney.com.

Step #1 - Gathering information - You contact me and then provide me certain information, such as info about your current policy and your health situation. I then do my research and obtain quotes from various different life insurance companies.   Together, we select the right new policy for you.   If that work is complicated or time-consuming, you are asked to pay my advisory corporation an upfront one-time good-faith fee of $300, which is refundable if you are not entirely satisfied.

Step #2 - The exchange process - During this step we fill out several forms that are required in order to make the exchange from the old policy to the new policy.   Do not try this on your own.   It could result in a lapse of your insurance coverage and also, in some cases, taxes.   The paperwork needs to be done in accordance with Section 1035 of the Internal Revenue Code and also, if it is in New York, in accordance with Regulation 60.

Step #3 - Underwriting and approval - After we fill out the application and many other forms, go through this exchange process, and after you get examined by representatives of the insurance company, we hope that the insurance company will find you in great health, at least as good as for the first policy, and issue to you a new policy.   At that point, the process is nearly complete.

Step #4 - Payment and refund - When the policy is issued, you must pay the premium that is due, calculated either monthly, quarterly, semiannually, or annually.   And once you pay that premium, you will receive the new policy.   For the policy that you have replaced, you are often entitled to a refund on the unused period of time for the premium you just last paid.

Step #5 - Savings -  This is the best step.   This is when you get to decide what to do with the money you will be saving.   Perhaps, you should spend it on needed items for your home or your family.   Or, perhaps invest the savings into your investment accounts for college or retirement.   Maybe, purchase more term life insurance to better protect your beneficiaries and give them a greater chance of getting through a very rough time, at least financially.   Reducing term life insurance costs can be a simple process that generates several benefits for you and your family.

About the author.

Frank Sisco is a CPA and Personal Financial Specialist, and author of many articles about personal finance and issues of life and money.   His firm, Financial Management Corporation, is located in New Rochelle, NY.  Frank makes his home with his wife and daughter in New Rochelle, NY.  He can be reached at 914.740.4422 or by email at ideasmoney@aol.com.  Visit his website at www.LifeAndMoney.com, which contains this and prior articles.