Let’s assume you did your research on term life versus whole life insurance and opted for term life insurance. Fast forward some years and your term life policy is about to expire. What is the next step you should take? Continue reading to find out what your options are. This is not something you can ignore because the wrong decision can negatively impact your family’s life.
In theory, a term life insurance policy is supposed to be in place typically for 20 or 30 years (your working years) in case you die prematurely. During your working years you should also be saving for your retirement. If you have a mortgage and have a family with young children, the face value of the policy is to replace the income your family would have otherwise received. But what happens when you are now age 50 or 60, your policy is about to expire, and you need more coverage? This could be a reality due to:
- Marriage or remarriage late in life and still have children to support.
- Early retirement (either by force or free choice) before you have enough money saved to protect your spouse if you should die first
- Unforeseen illness that has depleted your retirement savings
Here are four possible solutions depending on a particular scenario:
1. If you are in good health and need coverage for just a few more years, look for a term life policy that is for 5, 10, or 15 years. Chances are that premium prices will still be relatively affordable if you are in your 50’s and 60’s, especially if you are a non-smoker. In addition, you probably will not need as much coverage as you did when you were in your 30’s. For example, a 60 year old may pay about $80/month for a $250,000 10-year term policy depending on health, home state, and the insurance company.
2. If you are in good health and you know that you will need coverage for the rest of your life, consider choosing a type of insurance called “guaranteed no-lapse universal life” or “universal life with secondary guarantees”. Be aware however, that these policies do not offer cash values like ordinary whole life policies. The advantage of getting this type of policy is that you can get late-age term insurance with a lifetime guarantee which costs less than traditional whole life insurance. The guarantee will remain in effect as long as you pay your premiums on time.
3. If you do not have good health and cannot find insurance on the open market that is affordable, your current insurer can convert part or all of your term policy into some form of permanent insurance. A medical exam will not be required. Your insurer will offer whatever conversion policies that are available. However, time is of the essence. This has to be done before the term policy expires–usually within the months or weeks just before it expires. If you let this window of opportunity pass, it will be too late.
4. If you have poor health and cannot pass a health exam and miss your chance to convert your term policy to permanent insurance, you are basically out of luck. You can choose to continue your expiring term insurance regardless of health, but you will be paying much higher premiums. These premiums will continue to increase yearly by large amounts until you can no longer afford to pay them. If you know that you are going to die very soon, then this may be your best option. Otherwise, if you already have enough money saved that could support your family in the event of your death, put the money once used to pay for premiums toward your retirement savings instead.
I truly hope that I have given you something to think about regarding what your course of action should be when your term life policy is approaching expiration. It is very easy to go about our daily lives not realizing how time flies and before you know it, you find out your policy is going to expire soon. Be proactive by doing your research and come up with a plan that is best suited for you and your family. If you have any questions or comments, feel free to put them below and I will respond in kind.
Thanks for reading my post, and have a wonderful day.
Source: “The Term Life Decision: What To Do When Your Policy Expires” by Jane Bryant Quinn. AARP Bulletin/Real Possibilities, March 2016 Vol.57 No. 2 pg. 12 aarp.org/bulletin
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