My term life insurance is going to expire. What do I do now?
Buying term life insurance is much more affordable than buying a permanent life insurance policy. The main reason is because term life insurance is temporary while permanent life insurance is lifelong. Let’s discuss term policy expiration.
How long your term life insurance policy lasts is chosen by you. This length of time is the term. Depending on the insured individual’s age, a term can last anywhere from 5 to 40 years.
Term life insurance is designed to provide financial protection during a set length of time. Common timelines are 30 years, to coincide with your mortgage, or 20 years, to coincide with raising your children.
But what happens if you decide you need more life insurance but your term is getting ready to end? What options do you have? Let’s discuss term policy expiration.
The options you have if your term life insurance policy is about to expire:
1. You can buy a new life insurance policy.
One option is to buy a brand new policy. This could be term or permanent, but because you’re older, buying a shorter term policy such as 5 or 10 years might be the most affordable option.
It also may be wise to shop around versus going with the same insurance company you had previously. Even if the life insurance company you have now had the best prices when you first purchased, doesn’t mean they still do.
» Compare: Term life insurance quotes
Keep in mind when buying a new policy you will have to re-apply which means a new medical exam, unless you opt for a no-exam policy which have limitations and are more expensive.
Some people opt to buy both a term and permanent life insurance policy. If you want $500,000 in coverage, but don’t want to spend the money that comes with a $500,000 permanent policy, you can, for example, buy a $250,000 term policy and a $250,000 permanent policy. This way you pay less, have a couple options, and own the same amount of coverage you originally needed.
If you own a term policy, you may very well outlive your term (which is a good thing!)
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2. You can convert your term policy into a permanent one.
Most term life insurance policies have a conversion option. This allows you to convert all or a portion of your policy into a permanent one regardless of your health as long as you convert before the deadline listed on your policy. It’s important to note that converting from a term to permanent product will increase your premiums.
For more information on term conversions, check out our blog post How Do Term Conversions Work?
3. You can renew your term coverage.
Many insurance companies have renewability options on their term products. This means you can extend the coverage term without having to re-qualify.
The premiums will increase drastically if you opt to renew. The image below is an example of how much the annual premium for a 20-year term policy jumps if you want to renew it.
Most people only renew if they are diagnosed with a health issue that reduces their life expectancy. Let’s consider the image below to discuss an example. A 30-year-old male recently became a first-time father and bought a 20-year term policy that costs $244 per year. At age 49, he’s diagnosed with late-stage cancer and his doctor estimates that he has a year or two left to live. It’s worth it to him at this point to pay the annual premium of $2,989 at the end of his 20-year term to keep his coverage going for his family.
4. You can no longer own life insurance coverage.
A fourth option is to simply let your coverage run out. We have said it before: depending on your situation and the stage of your life, you may not need life insurance coverage.
You likely do not need life insurance if:
- You have paid off your mortgage.
- You have no debt.
- You have no children who are still dependent on you.
- Your spouse does not rely on your income.
The reason why you need more life insurance coverage will help you determine what route to take. Do not wait until your policy expires to decide what to do.
If the end of your term policy is approaching and you still want coverage, contact us here at Quotacy and we can help you with the next step. Take a second to run a quote too so you have an idea on how much a new term policy may cost you.
No need to spend time shopping around. We’ll do it for you. You can receive instant term life insurance quotes from multiple life insurance companies and then once you complete your online application, your agent will shop your case to make sure you’re getting the best price. Whichever life insurance company previously insured you doesn’t have to be the one to insure you again. You always have options. Make the best of them.
Photo credit to: Steve Snodgrass
Watch the Term Life Insurance Policy Is Expiring Video
Welcome to Quotacy’s Q&A Friday where we answer your life insurance questions. Quotacy is an online life insurance agency where you can get life insurance on your terms.
I’m Jeanna and I’m Natasha.
Today’s question is:
My term life insurance is going to expire. What do I do now?
On our last Q&A Friday, we answered the question Does my term life insurance policy premium increase? Spoiler alert, the answer is no. However, this question brought up a related question. What happens when your term is expires?
In case you aren’t sure how term life insurance works, let’s quick review. You buy a policy that provides coverage for a set period of time, typically 10, 20, or 30 years. These years are your term length.
So, let’s say you buy a 20-year term life insurance policy. Your beneficiaries are financially protected during those 20 years. After the 20th year is over, the policy simply expires.
Term life insurance is protection from the “what ifs” in life. If you die unexpectedly during those 20 years, whether it’s accidental like a car crash or due to illness like cancer, then your family will receive the life insurance money. This is called the death benefit.
But what happens if your term is coming to a close and you still need life insurance coverage? What can you do?
Today we’ll review 3 options you have. You can buy a new life insurance policy, you can renew the current term policy, or you can convert the term policy into a permanent policy.
Depending on your personal circumstances and your specific term policy, not all of these options may be available to you. Let’s tackle option #1 first.
Option #1: Buy a new life insurance policy. This is an option for you if you’re still insurable.
Be sure to shop around versus just buying a new policy from the same insurance company.
Even if the life insurance company you have now had the best prices when you first purchased, it doesn’t mean that they still do.
Apply through Quotacy and you can comparison shop instantly online and then your agent will do a second-round to make sure you’re getting the best price possible.
However, depending on how long it’s been since you first purchased your term policy, you may now be uninsurable.
For example, if you’re now over age 80, or if you’ve developed a serious health issue, you may not be able to qualify for a new traditional life insurance policy.
Your second and third options are going to be your best options if you’re no longer insurable.
Let’s talk about option #2. Renewing your term policy.
If your term policy is renewable, this means you can extend the coverage another year without having to re-qualify. So no medical questions or exams. Even if you have cancer, you can keep the coverage.
There’s a catch though. Renewal premiums are very expensive. And they increase each year you renew.
For example, let’s say a healthy 30 year old man buys a $500,000 20-year term policy that costs $244 annually. And at age 49 he’s diagnosed with late-stage cancer. He can renew his policy another year for just under $3,000 annually. If he’s alive a year later and wants to renew again, premiums jump to about $3,300 annually.
Although these premiums are incredibly expensive, if you’re in a terminal illness situation, the cost is worth it to leave your family the life insurance death benefit.
Your third option is to convert your term policy into a permanent policy.
Many term life insurance policies come with a conversion option. It allows you to convert your term policy into a permanent one regardless of your health. Again, like renewing, there are no medical questions or exams.
This option does expire at some point. And the expiration period varies by insurance carrier.
Some policies state that the conversion option is only available the first 5 or 10 years of the policy, others allow you to convert at any point during the term.
Converting your policy from term to permanent will increase your premiums. A permanent policy is much more expensive than a term policy.
But some carriers allow you to do a partial conversion.
So, for example, let’s say you have a 30-year $500,000 term life insurance policy. You’re in the policy’s 15th year and develop heart disease. It may not be a terminal situation, but it definitely impacts your mortality.
Your insurance company allows you to do partial conversions. And due to your budget, you decide you only want to convert $150,000. You then only have to pay premiums for a $150,000 permanent policy, which now lasts the rest of your life, and you get to keep $350,000 in term coverage until it expires in 15 years.
So, to recap, if your term life insurance policy is ending and you want more coverage, apply for a new policy if you’re still relatively healthy.
Or if you’ve been diagnosed with a serious medical condition since you first bought the term policy, then renewing or converting may be better options.
If you have any questions about life insurance, make sure to leave us a comment.
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