Term life insurance is a great product to own. It is cheap and easily understood. If you pay the premium set by the insurance carrier and you die, then the claim is paid. Easy enough right? The major problem with term is that it comes to an end. Term does expire depending on the length that you chose. The term lengths that you get to choose from are 10-30 years, and your age is a factor in this. For example, no insurance company would let a 70-year-old buy 30 years of term clearly for obvious reasons. This is common with all the insurance carriers.
Insurance Agents love to sell term life insurance. The reason for this is because they know at some point there is going to be another sale. They know that term expires, and the client is more than likely going to want to keep his or her insurance. Don’t get me wrong, agents don’t push term only because of this, but it is something we all are aware of. Something else to keep in mind, when your term policy does expire you are going to be older, which means premiums are going to be higher on across the board. If you own a term policy, you will want to make sure you don’t wait until the policy is expiring before finding out what your options are.
My recommendation is if you can afford something permanent, then do so. The longer you wait then the more it is going to cost, but I understand that sometimes a term policy just fits better for certain situations. I own 3 term policies myself!
FIVE SOLUTIONS FOR EXPIRING TERM
- Renew the policy:Usually about 3 months before your term expires you will get a letter from your insurance carrier. In this letter, the carrier will let you know that your guaranteed period of your policy is about to expire. At this point, the carrier lets you know that you can renew your policy on an annual basis. That sounds great doesn’t it? Well it is if you are un-insurable and can’t qualify for any other coverage. The downside is that your policy is considered an Annual Renewable Term, which means it renews every year and the premium increases every year. From my experience, most if not all are not going to pay these increased premiums and I can’t say that I blame them. So, what’s the next option:
- Purchase a new policy:This sounds simple enough, when my term expires I will just purchase a new policy. Hold on a second!! I’ll explain why this isn’t so easy. If you are unhealthy when you go to purchase the new policy, then you are going to be rated or declined. This means a higher premium than someone that is your age and healthy. You must show proof of health for a new policy. This usually means you will have to do another exam and be fully underwritten. The next problem with this is that the premium is going to be higher. Remember you are anywhere from 10-30 years older depending on what term length you chose. Only if you are healthy then this will be the cheapest solution.
- Convert to something permanent-When we talk about converting your term policy to a permanent policy, we are talking about a feature that most (not all) term polices come with. The feature lets you convert your term policy to a permanent policy without the insurance carrier being able to ask any questions. This sounds great if you have had health issues since buying your term policy. It means you won’t lose your coverage. First, you will want to make sure that your policy has this feature and if there are any exclusions. For example, let’s say you have a 30-year term, but you can only convert it the first 15 years. This means any year after 15 you lose that option to convert. Also, some companies only let you convert to certain products, and let me tell you they are not always the best or cheapest. Therefore, when you are purchasing term, these questions are a must. How much you will pay for a conversion is based on your age at that time, and what type of product it can convert to.
- Let the policy go– This is probably not the wisest choice, but it is a choice, so we must talk about it. If you have been successful and have lots of money saved, then this may be an option for you. This is called being “self-insured”. Not many people fall into this category. If you do congrats!! Most people are still going to need life insurance and won’t have the money saved.
- Sell the policy-Yes you read that right, we said sale the policy. If you able to convert your policy to something permanent, then you may be able to use a life settlement. A life settlement is when an outside buyer (usually a company/not an individual) will offer you a lump sum of money to buy your policy. Usually you will get an offer around 15% of the face amount depending on who you use. So, let’s say you have a $200K whole life policy you want to sale. You are likely going to get offered about $30K for it. Doesn’t sound like much, but better than nothing! Now we don’t do life settlements and hardly know enough to be giving any advice. We recommend you talk to a professional if you would like more information.
So, if your term is about expire, don’t worry you have some options. Always make sure that you talk to an experienced agent who can walk you through all these options and help you pick the one that best fits your situation. If you have any questions, please don’t hesitate to give us a call.