Refinance your life insurance

Tell the truth

Beware, though, the temptation to lie on your application to get a better rate. If your deception is discovered, your heirs could pay the price.

If you're a weekly cigar smoker, for example, abstaining for a few weeks prior to your medical exam might eliminate the nicotine marker from your urine, said Barney, president of Compulife Software, which provides the Term4Sale online insurance quote service.

But if you die and the insurer investigates your claim, a chatty neighbor might reveal your "secret" habit -- and the insurer might refuse to pay.

There is a loophole for U.S. residents. If you don't die within the first two years of getting a policy and the insurer doesn't otherwise discover your "misstatement" during that period, the company has to pay the benefit unless your deception rose to the level of fraud (such as if you pretended to be an entirely different person).

So if you've already fudged an insurance application and you're beyond the two-year mark, you might want to hang on to your current policy rather than refinance.

Canadians don't have that protection, by the way. Barney says any deception on an application can result in a claim being denied, regardless of how many years have passed.

Start shopping for rates

Rather than lie, Barney suggests you simply shop around for an insurer with policies that don't severely punish your particular illness or situation.

Sites like Insurance.com, Intelliquote and Accuquote can help you compare how companies determine who is a "preferred" or "preferred plus" candidate (and thus eligible for better rates) and who is in the "standard" category. An experienced life insurance agent who knows various companies' policies also can help you shop.

If you decide to refinance your life insurance, remember:

• Get enough coverage. Both the amount you buy and the length of coverage are important. Barney recommends that young families get 30-year, guaranteed-level premium coverage, which locks in their rate for as long as they're likely to need insurance. Some parents try to get by with 20-year policies, he said, but that doesn't reflect the fact that many children aren't completely out of the nest until their mid-20s. MSN's Life Insurance Needs Estimator can help you calculate how much to buy.

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  Stronger is better. You want the company to be around when your heirs need it. A.M. Best, Standard & Poor's and Moody's all rate companies' financial strength.

• Stay covered. Make sure your current policy doesn't lapse until your new coverage is securely in place. Keep paying on the old policy until the new one is issued.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston’s award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated July 17, 2009

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