If you outlive your Term Life Insurance policy, Congratulations! This was the point of the policy to begin with, right?
Some people feel like Term Life Insurance is a big waste of money and it should be. I often compare it to things like auto insurance or homeowner’s insurance. You pay a premium to protect the ‘what-if’ but hopefully nothing ever happens. That’s why Term Life insurance is so inexpensive for most people.
For example, a healthy 45 year old male looking for $1,000,000 of coverage for a 20 year Term would only pay $93 per month. Thus, over 20 years that would have been approximately $22,000 to protect your family for $1,000,000 of coverage. That’s only 2% of what the policy could be worth. That’s a risk I’m willing to take everytime to protect the people I love.
Now What Happens When I Outlive The Policy?
Most Life Insurance policies are guaranteed renewable. What that means is when you reach the end of your term the insurance carrier will send you a letter typically 3 months before expiration informing you what that new rate will be. In most instances, that rate is at least 4-5X more expensive than what you were used to paying. Every year the premium will continue to rise at the same rate if you are still paying the renewal rate.
Assuming you still need or want life insurance when you are approaching the end of your term policy then we recommend that you re-shop for a brand new policy about 3 months prior to your current policy expiring. Thus, if your current policy reaches the end of it’s term April 1st then you want to start shopping in January. It could take up to 6-8 weeks for a new policy to get issued so to avoid having a lapse in coverage re-shopping for a new policy 2-3 months before is good idea. Of course, you can always replace your current policy early if you choose to.
Does It Make Sense To Pay My Renewal Rate?
It depends on your health. If you have a health condition that prevents you from purchasing a new policy at an affordable rate than the renewal rate may make sense because it guarantees your insurability and no medical exam is involved. The rate is based on the original rate class that you qualified for when you first bought the policy which is great. It’s simple, if you pay the renewal premium you still have coverage.
Now if you are still in relatively good shape it usually always makes sense to just contact your agent and have them reshop the market. The new rates are much less expensive than renewal rates are because you are qualifying for a brand new policy again so underwriting is typically involved.
For example, If you are a healthy 40 year old male and bought a $2,000,000 policy for a 10 year Term your payment would be around $52 per month. Now, assuming no health changes in 10 years and you shopped for a brand new policy at 50 years old that premium would now be $146 per month for a brand new 10 year Term for the same coverage amount. This would be much less expensive than paying the renewal rate which will continue to go up every year.
Can I Convert My Term Policy To A Permanent Policy?
Your insurer may allow you to convert all or a portion of the policy into a permanent policy.
For the most part, a term conversion is available on many term life insurance policies during a specified time frame. You want to contact a licensed independent insurance agent and check your policy as soon as possible because with certain policies, the period in which you can convert it may end many years before the policy expires.
If you decide to convert your policy you can expect to pay more but the good news is you will continue to carry life insurance and your policy will begin to build cash value as well. The cash value is money you can eventually access for a variety of reasons. Another great reason to convert is it guarantees your insurability. As discussed earlier, if you had a health condition that would prevent you from buying a new policy then you would be able to convert all or part of your Term policy to guarantee protection for your family for the rest of your life. It’s a great options that’s available if you need it.
No Longer Need Life Insurance?
That could be a good thing depending on your financial situation. If that’s the case, you can let your policy lapse if you no longer need life insurance. You won’t need to renew, reapply, or convert — you can simply let it expire. If you have an auto-debit set up with your current life insurance carrier you’ll want to give them a call just to make sure they won’t automatically charge you for the renewal rate if you had autopay set up prior.