This is a question that we often get asked quite a bit when we are performing annual policy reviews with our clients. The answer is not that easy. To “extend” the life of your policy, there are a few great options.
While negotiating a new term life insurance policy with a client, especially if they have gotten life insurance quotes on our website, we typically show the premiums for various term lengths, ranging from 10 to 30 years. Unless there is an urgent need for a short time period (for instance, 10 years to pay off a short-term loan), we will frequently recommend the longest term available (30 years for most age groups).
We are aware that there are financial factors to consider, but we will show a client that going with a longer term is often less expensive overall. The charges may be significantly higher after a shorter term if the client’s health class changes as a result of declining health.
My current advice is the same as it has always been: choose the policy with the longest term length that is appropriate for your age when purchasing term life insurance.
Loss of Term Life Insurance
Your policy is not technically “kicked out.” By the time your term is up, the rates will have significantly increased, but you can still make premium payments. Insurance brokers that are working in your best interests will often stop you from having to take that action.
We always recommend a longer-term if there is no realistic situation in which we would want our policy to expire. This is significant since you lock in rates when you’re younger.
I assure you that purchasing a 30-year term life insurance policy at the age of 31 will be far less expensive than purchasing a 10-year term policy at the age of 61.
20/20 hindsight. Having a temporary policy, what should I do?
The term of your life insurance policy is coming to an end, and you just want to know your options.
The most obvious solution is to buy a brand-new term life insurance policy. The application and application process will need to be started over again, which is a negative of this route, but it will almost always be less expensive than continuing to pay the premiums on your present policy after the term has ended.
Your premiums won’t be as affordable as they could be, as I have indicated, but they’re virtually always the best choice.
Can You Convert Your Policy?
One amazing advancement in the life insurance industry is the potential of converting your term life insurance policy to a permanent life insurance policy in order to protect you from this particular situation.
These options are not always available, and many policies place limitations on “when” you can make these changes.
You must comprehend your policy completely.
What do I mean when I say that timing your term life insurance switch is important? Not all policies are created equal.
Some carriers may only permit monthly conversions of your term life insurance policy. To put it another way, you only have a certain amount of time to convert your term life insurance policy to a permanent one.
These times are frequently covered within the first five years of the policy’s release. Another common restriction is Convertibility to “Specific Age.”
You can convert your policy as long as you are younger than the policy’s maximum age. The age of 70 is a decent starting point, albeit it is not always the same.
Several term life insurance policies don’t have these limitations, and you can switch to a permanent policy at any point throughout the term.
Do I get my money back when my term life insurance policy expires?
This seems like an obvious choice. Why would an insurance company take on the risk of paying a death benefit in exchange for a monthly premium and then returning your premiums if you outlive the policy?
There are actually two ways to get a return from your life insurance policy:
The initial one benefits from a Return of Premium Rider.
The first limitation on using this is that you will not be reimbursed for the WHOLE amount of premiums you have already paid if you cancel before the end of the term.
The additional drawback of having this rider is that it will cost you significantly more in premiums over the duration of your policy in exchange for the ability to receive a refund of your premium payments.
When it comes down to it, you must choose the trade-off that is best for you. Term life insurance is the most affordable option for safeguarding their family and income.
When you include in this return of premium rider, that is no longer the most affordable alternative.
When asked if you get your money back at the end of a term life insurance policy, however, the short response is “no.”
Unless you have a return of premium rider or convert your policy to a permanent one, you won’t receive any money back if you outlive it.
Sell Your Policy
I did mention that there were two ways to pay for or benefit from your term life insurance policy, the first of which was the return of premium rider.
Your second option is to sell your Term Life Insurance policy.
Another name for this is viatical settlement. Although picking this course of action depends heavily on the circumstances, it can actually make a lot of sense for a small number of people.
There are many disadvantages to this strategy if you’re trying to sell a policy that is nearing the conclusion of its term. The amount of cash value or remaining term (in the case of term life insurance) that affects a policy’s value is directly related to both factors (permanent life insurance).
Renewable Life Insurance
So, there is one more option.
It is referred to as Term Life Insurance with Renewable Options.
There isn’t really any other way to “extend” your term life insurance policy besides by doing this, technically speaking.
This, however, must be included when you buy the policy; it cannot be simply added on when you realize your term is about to expire and want that option.
This isn’t often the most financially sensible option out of all the options. A new term life insurance policy will often be less expensive overall. The renewable term life insurance policy, on the other hand, is unquestionably suited as a last alternative.
Only in that context should it be taken into account. This option is only useful for those whose health has significantly changed. A renewable term life insurance policy is the less expensive option for people in poor health because, A, they would never be accepted for a new policy or, B, the premium would be prohibitive due to their poor health-class rating. This way, you can lock in your insurability.
Purchasing a 30-year term policy every ten years rather than a 10-year term policy
Unless in cases where you have a shorter need for a particular purpose, we always advise purchasing the longest term coverage that is within your budget. Unless in cases where you have a shorter need for a particular purpose, we always advise purchasing the longest term coverage that is within your budget.. Instead of buying a new policy more frequently and running the danger of paying higher premiums owing to negative changes in your health, you can do this to lock in your present health class until the end of the term.
There isn’t much of a cost difference between purchasing a 30-year policy and twice renewing a 10-year policy provided your health doesn’t change (it varies based on age and health class). I compared costs for a 35-year-old male for a $500,000 term policy.
I offered terms of 30 years and 10 years, both of which were twice renewed. For a male in the best health category, a 30-year term policy actually cost somewhat more over the course of 30 years (about $600 more).
When I did the same calculations for the Preferred Health Class, the 30-year option cost around $2,000 less than the 10-year option. A person’s age and health category are once more taken into consideration when purchasing a policy.
Who, however, can forecast their health in 10, 20, or 30 years? Would a healthy 35-year-old male be in the same health at age 55, when the last of the three 10-year plans must be purchased? Locking in rates when you’re younger eliminates the risk because the majority of us encounter health changes as we mature (it actually transfers the risk from you to the insurance company).
The Best Option For A Term Life Insurance Policy That Is About To Expire
Due to the situational nature of life insurance, customers are drawn to the policies’ adaptability and personalization. Another justification for why there isn’t a single best course of action for everyone is this.
Each option will be briefly discussed, along with who it works best for and who you should avoid.
- Getting a New Term Life Insurance Policy
For the vast majority of people, this will generally be the best option. The majority of people who purchase term life insurance don’t want long-term protection.
People are more willing to pay the reduced term life insurance premiums since they are aware of the risks and benefits.
If your health hasn’t significantly worsened, you can probably still obtain a term policy at a fair price and have peace of mind knowing that your family is safe.
2. Convert Your Term Life Insurance To Permanent Life Insurance
This is yet another wise decision. I would recommend this choice for people who may have had this in mind from the start or who just wanted to temporarily benefit from the relatively inexpensive rates of term life insurance but understand the need for a long-term fix.
As we previously stated, this isn’t always allowed. Your policy’s cost will be influenced by the type of policy you have, the company from which you purchased it, and other factors.
3. Get a New Permanent Life Insurance Policy
This is not ideal since, if you intended to buy a permanent life insurance policy, it would have been smarter to pay the lower premiums you would have been offered when you were accepted for your term policy. Underwriters favor the population that is younger and healthier, regardless of discrimination.
Although while it is not ideal, it does accomplish the main goal for those looking for permanent life insurance who do not currently have a policy where they may convert their term coverage.
4. Sell Your Policy
Selling a Term Life insurance policy right before it expires is typically not a wise decision. The majority of people who buy life insurance plans desire permanent coverage with some kind of cash value accumulation. Because of this, the value of an end-of-term, term life insurance policy is dramatically diminished.
Not having insurance is the alternative, which is much worse than the sum of the other three options.
If your term life insurance policy is set to expire, it is crucial that you are aware of all of these possibilities and the steps you must take. Make sure you are aware of all of your options if your current policy includes a convertible option.
While choosing whether to renew your term policy, purchase another one, or receive a refund, keep in mind the financial stability of your family. In order to acquire a life insurance quote, please visit our website to see which options would be best for you and your loved ones.