Term Life Insurance: Can It Outlast 30 Years?

Term life insurance is a type of insurance that provides a death benefit for a specified period of time, typically ranging from 10 to 30 years. It guarantees payment of a stated death benefit to the insured's beneficiaries if the insured person dies during the specified term. These policies do not usually build cash value and are generally cheaper than permanent life insurance. When buying term life insurance, individuals can choose the term length based on their financial situation, such as the length of their mortgage or until their children are old enough to support themselves financially. While term life insurance policies usually last for a set period, some companies offer longer terms of up to 40 years, and policies can often be renewed or converted to permanent life insurance.

Term life insurance rates

Term life insurance is a type of life insurance policy that provides coverage for a certain period, such as 10, 20, or 30 years. If the policyholder dies within the term, their beneficiaries will receive a cash death benefit. However, if the policyholder lives longer than the selected term, the policy will expire without a payout. The cost of term life insurance depends on various factors, and it's important to note that rates can vary significantly among applicants, insurers, and policy types. Here are some key factors that influence term life insurance rates:

• Age: Younger people generally pay less for term life insurance because they are less likely to have health problems. As you get older, your rates will increase due to the higher likelihood of health issues and a shorter life expectancy.
• Gender: Since women have longer life expectancies than men, they typically pay less for term life insurance.
• Health: The healthier you are, the more affordable your term life insurance policy will be. Pre-existing health conditions, blood pressure, cholesterol levels, height, and weight can all impact your rates.
• Smoking Status: Smokers pay higher rates for term life insurance because they are at a higher risk of developing health issues.
• Family Medical History: Insurers may inquire about any family history of serious health conditions, such as heart disease, cancer, or diabetes, which could impact your rates.
• Driving Record: A history of DUIs, DWIs, or major traffic violations may result in higher term life insurance rates as it indicates a higher risk.
• Occupation and Lifestyle: Hazardous or high-risk jobs, as well as risky hobbies or activities, can lead to higher term life insurance rates.

When considering a term life insurance policy, it's important to compare quotes from multiple insurers, as rates can vary. Additionally, the length of the term and the amount of coverage will also impact your rates. Longer terms and higher coverage amounts will generally result in higher premiums. It's worth noting that term life insurance is typically more affordable than permanent life insurance, which lasts a lifetime and includes a cash value component.

Extending a term life insurance policy

Term life insurance policies typically last for a set period, usually 10, 20, or 30 years. However, if you find that you still need coverage after your term policy expires, there are several options to extend it. Here are some ways to extend a term life insurance policy:

Annual Renewable Term Life Insurance

Some term life insurance policies offer the option to renew coverage on a year-by-year basis after the initial term expires. This option is useful if you develop health issues that make obtaining new insurance challenging. However, renewal premiums are typically more expensive each year due to age-related risk increases.

Conversion to Permanent Life Insurance

Many term life insurance policies include a conversion rider, which allows you to change your term policy into a permanent one without going through underwriting again. This option is valuable if you develop health conditions or become uninsurable but still need life insurance after your term policy ends. Conversion rates are based on the original risk class when the policy was taken out, and you may be able to convert only a portion of the policy to balance the need for coverage with manageable payments.

Renewing Term Coverage

Most term life insurance policies can be renewed for a limited number of years without requiring evidence of insurability. This option ensures continued coverage even if your health has changed, and the premium increases are usually less significant than applying for a new policy after being diagnosed with a serious health condition.

Purchasing a New Term Policy

For those in good health, purchasing a new term policy may be the most inexpensive option. However, a medical exam is typically required, and the premium will increase if there are new health issues or if the insured is older.

Buying a Permanent Policy

If your term policy does not have a conversion rider, you can buy a permanent life insurance policy after the term expires. Permanent policies, such as whole life insurance, are more expensive but offer lifetime coverage and include a tax-deferred cash value component.

Final Expense Insurance

Final expense or burial insurance is a type of permanent insurance with low coverage limits designed to cover end-of-life expenses. It may be suitable for older adults who want to prevent their beneficiaries from facing financial challenges associated with their death or those with pre-existing health conditions.

When considering extending a term life insurance policy, it's important to assess your financial situation and future needs. Consult with a financial advisor or licensed insurance professional to make an informed decision based on your specific circumstances and goals.

Converting a term life insurance policy

• Check your policy: Review the terms and conditions of your term life insurance policy to see if conversion is an option. Most policies include a conversion option, but it is always good to confirm. Also, check the term conversion period, as some companies may limit the time frame during which you can convert.
• Contact your insurance agent or company: Get in touch with your insurance agent or company to initiate the conversion process. They will guide you through the necessary steps and provide you with the required forms.
• Choose the type of permanent policy: Decide what type of permanent life insurance policy you want to convert to. Common options include whole life, universal life, and variable universal life insurance. The specific options available to you will depend on the insurance company and the terms of your term policy.
• Complete the conversion application: Fill out the conversion application form provided by your insurance company. This may include choosing how much of your term coverage you want to convert and providing additional information as required.
• Submit the application: Submit the completed conversion application form, along with any other necessary documentation, to the insurance company for processing.

It is important to note that converting a term life insurance policy to a permanent one will result in higher premiums. The cost will depend on several factors, including your age, the amount of coverage, and the type of permanent policy you choose. Additionally, the permanent policy may offer different benefits and features compared to your term policy, so be sure to review the details carefully before making the conversion.

Choosing the right term length

When buying a term life insurance policy, you can tailor the term length to your personal financial responsibilities, such as children, a mortgage, or insuring your income until retirement. Here are some factors to consider when choosing the right term length for your policy.

Mortgage

If you are a new homeowner, you can consider a 30-year term, as that is how long many mortgages last. Even if you have taken out a 20-year mortgage, the extra years can be useful if you refinance or your circumstances change.

Co-signed loans

If you have co-signed private student loans for your child or a business loan with a partner, your life insurance policy should outlast those debts so that your co-signers can keep up with the payments.

Children

If you are a new parent, you need coverage for as long as your children are financially dependent, which can be anywhere from 20 to 30 years if you plan to support them past the age of 18 or help pay for their education.

Expenses until retirement age

Your life insurance policy should ideally last until your beneficiaries wouldn't struggle to pay expenses without your financial support. For many people, this financial independence occurs at the age of retirement, when their children are out of college and their mortgage is paid off.

Your age

Your age can also impact the term lengths you qualify for. For example, older adults in their 70s aren't eligible to purchase a 30-year term with most insurers but may qualify for up to a 20-year term. Each life insurance company has its own limits, so ask a life insurance agent about your specific situation.

Future financial obligations

Although you can evaluate your current financial obligations to determine how long your term life policy should last, it may be worthwhile to choose a longer term for your policy in case you take on more financial obligations in the future.

Lower rates now

Life insurance rates increase every year as we age because we get riskier to insure. However, once you buy a policy, your premiums will stay the same for the entire length of your term. Therefore, buying a 30-year term now will save you money in the long run compared to buying a 20-year term and then another 10-year term when the first expires.

Approaching retirement

If you are approaching the end of your career, you may only need a 10-year term or less to cover those last few years when your salary helps support your loved ones' lifestyle.

Children are almost financially independent

If you have teenagers or young adult children, you may only need a few more years of life insurance coverage while they are still dependent on your income.

Debts are almost paid off

If you expect to pay off any debt, including a mortgage, in the next few years, it is smart to buy life insurance to bridge that gap, but a shorter term may be better suited to your situation than a longer one.

Who term life insurance is for

Term life insurance is ideal for people who want substantial coverage at a low cost. It is a good option for those who cannot afford or are unwilling to pay the high monthly premiums associated with whole life insurance.

Term life insurance is attractive to young people with children. Parents can obtain substantial coverage for a low cost, and if the insured dies while the policy is in effect, the family can rely on the death benefit to replace lost income. These policies are also well-suited for people with growing families. They can maintain the coverage needed until their children reach adulthood and become self-sufficient.

The term life benefit may be equally useful to an older surviving spouse. However, premiums for people who wait until they are older to apply for insurance will be higher than if they’d gotten a level-term policy when they were younger.

Term life insurance is also a good option for people who cannot afford or will not pay the much higher monthly premiums associated with whole life insurance. It is somewhat similar to car insurance. It is statistically unlikely that you'll need it, and the premiums are money down the drain if you don't. But if the worst happens, your family will receive the benefits.

When deciding between term and permanent life insurance, consider your long-term financial goals, your budget, and whether you want coverage for a specific period or your entire life.

Frequently asked questions