What Is A Change Of Plan Provision In A Life Insurance Policy?By Patrick Cooper Posted in Life Insurance News
Purchasing An Insurance Policy Means Entering Into A Contractual Agreement
When you purchase a life insurance policy from an insurance company, you enter into a legally binding contract with that company. By agreeing to the contract you essentially agree to pay a certain amount of money to the insurance company over time or in one lump sum, and in return the insurer will pay out a set amount of money to your beneficiaries if you die or become terminally ill. Although the contractual agreement is legally binding once you sign it, the agreement is specifically written so that you can change certain aspects if need be.
Change Of Plan Provision Allows The Policyholder To Increase Or Decrease Insurance Coverage Amount
A change of plan provision is written into most life insurance policies and is in place to allow the insurance policyholder to alter the type of life insurance. A common reason for a policyholder to change their type of life insurance is if their family grows and they decide that they need more life insurance coverage. If a policyholder increases their life insurance coverage to a higher premium plan, then he or she will be required to pay more money to the insurance company.
Depending on the exact life insurance company the fees will vary, but often the policyholder is required to pay the monetary difference in value between the two plans and what is known as a carrying charge. A carrying charge is a percentage of the monetary difference between the two insurance policies and is usually around 3 to 5 percent. If the policyholder increases the amount of insurance coverage, the financial risk to the insurance company increases. Therefore, the insurance company may require that evidence of insurability be provided.
It is also possible to convert from a higher to a lower premium life insurance policy. When switching to a lower coverage plan, the insurance company will reimburse the policyholder the monetary difference between the two plans. If the amount of insurance coverage decreases the insurance company will usually not require evidence of insurability.
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