Term life insurance policies ideally last as long as principal financial obligations, such as a mortgage or the costs of raising children. But sometimes things don’t work out that way.
If your term life policy is ending, you may still need life insurance protection if you:
Have house payments.
Owe other major debts.
Have children who are still dependent on you.
Have a partner who depends on your income.
Want to leave money to your heirs through life insurance.
If you fit one or more of these categories, there are a few options to consider.
Buy another term life insurance policy
If you still have obligations like mortgage payments or dependents, the best option for most reasonably healthy people is to buy another term life insurance policy. You might have to pay a higher price now that you’re older, but buying a shorter term — such as 5 or 10 years rather than 20 — will help lower the cost.
Shopping around can also pay off. Even if your former insurer offered the best deal when you were searching for your previous policy, another company could have better life insurance rates this time.
Keep in mind that you'll probably have to answer health questions and take a life insurance medical exam during the application process.
Take it year by year
Rather than buying a new term life policy for five or more years, you could opt for annual renewable term life insurance, where you decide each year whether to continue coverage. This may be a good choice if you anticipate only a few more years of major financial obligations. The main drawback is that rates can jump quite a bit each year, making a “level term” policy a better choice for needs that last at least five years.
As an alternative to annual renewable term life, ask your agent if you can extend your current term policy one year at a time. This would let you avoid a new medical exam, but the price jump may be prohibitive. This could also be an option for people with terminal medical conditions who need life insurance at any cost.
Convert your term policy to permanent life insurance
Although term life insurance is best for most people, permanent life insurance has certain advantages. Permanent life insurance, as the name implies, lasts the rest of your life. But it also costs much more than term life. Types of permanent policies include whole, universal and variable life insurance.
If you still need coverage after your term life policy expires, your carrier may offer the option to convert it to a permanent life insurance policy — without taking a new medical exam or answering health questions again. You may be able to convert only a portion of the death benefit, however, meaning you’d have a lower benefit once the term policy ended.
Most companies allow you to convert term life to whole life insurance, which has a fixed premium, investment return and death benefit. Some may allow conversion to universal life, which offers flexible premium payments and permits changes to the benefit amount, says Ryan Andrew, an insurance agent in Richmond, Virginia.
“This makes sense in a lot of cases as long as the client can afford whole life,” Andrew says. Look for the conversion provision in your policy document for the details or ask your agent.
If your term life policy allows conversion, there will be a deadline for conversion that’s before the end of the policy. There’s also typically an age cutoff for converting, usually 75. The new permanent life premiums get higher every year you wait to convert. Converting only a portion of the coverage amount to a permanent policy can save some money.
Buy a new permanent life insurance policy
If you re-evaluate your life insurance and decide that you want to buy permanent life insurance, converting your term life policy may seem like the most convenient way to do it. But if you’re still in good health, it might not be the cheapest route. Be sure to get quotes for a new permanent life insurance policy, too.
“Do not just convert with the existing carrier before quoting all other options first,” advises Michelle Morgan, an insurance agent in Livermore, California. “Health and underwriting information can change, and another carrier might be a better fit.”
Most people who still need life insurance coverage are best off buying a new term life insurance policy. If you’re one of the exceptions, you may want to consult a financial advisor.
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