Extending Term Life Insurance: Strategies For Continued Coverage

Term life insurance is a policy that provides coverage for a specific period, typically between 10 and 30 years. If the policyholder outlives the policy, their coverage ends, and they stop paying premiums. While some may choose to let their policy expire, others might still need life insurance coverage and will need to get a new policy. Here are some options to extend term life insurance coverage.

Converting to a permanent policy

If you have a term life insurance policy, it will expire after a certain period. However, you can convert some term life policies to permanent policies that never expire and carry a cash value. Permanent life insurance policies offer a cash value component, which grows your policy by saving or investing a portion of your premium. You can withdraw or borrow from your cash value to pay for long-term care, policy premiums, or leave a larger death benefit for your beneficiaries.

To convert a term life policy to a permanent policy, first check the language of your policy to see if conversion is an option (it is on most policies). Next, check the term conversion period—the time frame during which you can convert. Some companies will allow policyholders to convert at any point during the term of their policy. But many will limit the conversion period. For example, the conversion period on a 20-year term policy might be limited to the first 10 years the policy is in force.

Then, contact your insurance agent or company to ask to convert your policy. You won’t have to take a life insurance medical exam or go through the underwriting process again. You’ll simply fill out a questionnaire, and your new permanent policy will be issued within a few days. There are no fees to convert a term policy to a permanent policy. However, the rate you pay for coverage—your premium—will increase. How much it increases depends on several factors, including your age when you convert, the amount you convert, and the type of permanent policy you choose to convert your term policy to.

While conversion locks in your insurability, you'll still have to pay higher premiums on a permanent life policy, which provides lifelong coverage and cash value. Assess your income, expenses, and other financial obligations to determine if you can comfortably afford the cost. Not being able to pay for your premiums could cause your policy to lapse, meaning you lose out on your death benefit and cash value.

Reasons to convert a term life policy

There are several reasons why you might want to convert a term life policy to a permanent policy:

• You’ve had a change in health. Converting a term life insurance policy to a permanent policy allows you to extend your coverage without going through the underwriting process. This can be a valuable option if your health changes for the worse.
• Your budget has changed. You might have wanted to buy a permanent policy from the get-go but couldn’t afford the higher premium. If you’re making more money now, it can make sense to convert if the higher premium on a permanent policy fits within your budget.
• You want a cash value asset. One of the benefits of a permanent life insurance policy is that part of your premium goes toward the cost of insurance and part of it goes toward building cash value. Some people want cash value life insurance so they can access the cash during retirement (or for other reasons) tax-free.
• You want to leave a legacy. If you want to be able to leave an inheritance for your children but don’t want to scrimp during retirement just to ensure there’s cash left to pass on, a term life conversion can help solve that problem.
• You want to have funds to cover your final expenses. Even if you’re not worried about passing on money to your children, you might not want to saddle them with paying for your funeral. So converting enough of a term policy to a permanent policy to cover final expenses could make sense.

Buying a new term life insurance policy

If your term life insurance policy is expiring, you may want to consider buying a new one. Here are some things to keep in mind when doing so:

Understanding Term Life Insurance

Term life insurance is a type of insurance policy that provides coverage for a specific period, typically between 10 and 30 years. It is designed to give your beneficiaries a payout if you pass away during the term. The premiums for term life insurance are usually reasonable because these policies are simple and do not last a lifetime.

When to Consider Buying a New Term Life Insurance Policy

You may want to buy a new term life insurance policy if your current policy is expiring and you still need coverage. This could be the case if you have dependents or financial obligations that would be left unprotected in the event of your death. Additionally, if you are unable to convert your current policy to a permanent policy or if the cost of converting is too high, purchasing a new term life insurance policy may be a more affordable option.

Choosing a New Term Life Insurance Policy

When choosing a new term life insurance policy, consider the following:

• Coverage Amount: Evaluate your financial situation and the needs of your dependents to determine how much coverage you require.
• Term Length: Decide how long you need the coverage to last. This will depend on factors such as the age of your dependents and the length of your financial obligations.
• Cost of Premiums: Compare the cost of premiums between different insurance providers. Keep in mind that premiums will likely be higher than your previous policy due to your increased age.
• Medical Exam Requirements: Most term life insurance policies require a medical exam to determine your health and set your premium rate. If you have a pre-existing medical condition, look for insurers that offer coverage without a medical exam.
• Riders and Add-ons: Consider any additional riders or add-ons you may want to include in your policy, such as a return of premium rider or an accelerated death benefit rider.

Shopping Around

Don't be afraid to shop around and compare multiple insurance providers to find the best term life insurance policy for your needs. Look at customer reviews, financial strength ratings, and the range of policies offered by each company. Getting quotes from several insurers will help you make an informed decision about which policy is right for you.

Extending your current term policy

If you need to extend your term life insurance, you have a few options. Firstly, you can renew your current policy. Many term life insurance policies include a guaranteed renewability clause that lets you extend your coverage on a year-to-year basis until you are 95 years old. Your death benefit stays the same, and you won't need to reapply or take another medical exam. However, your premium will likely increase each year you renew. This option is best if you only need coverage for a few more years.

Another option is to convert your term policy to a permanent, whole life insurance policy. Most term life policies include a conversion provision, but you should check your policy or contact your insurance company to confirm. Whole life insurance will cover you for the rest of your life and may be a good option if you've had a change in health, still have dependents, or have more debt than anticipated. It may also be cheaper than buying a new life insurance policy, as you may not need to take another medical exam.

If you can't convert your term policy to a whole life policy, you could consider buying a second life insurance policy. However, be aware that your premiums will likely be much higher than your original policy.

Buying a second life insurance policy

There are no laws, rules or regulations around the number of life insurance policies an individual can have, so it is technically possible to have as many life insurance policies as you want. However, it is important to keep in mind the cost implications of taking out multiple policies.

In some cases, it may be less expensive to simply buy a second life insurance policy than to increase the coverage of an existing policy. This is because the cost of your premium will be based on your current age and health status. Therefore, if your health has deteriorated since you took out your first policy, you may find that taking out a second policy is a more cost-effective option.

Many people take out a second life insurance policy to supplement a small group insurance policy provided by their employer. This is because employer-provided policies often only offer a small amount of coverage, perhaps enough to cover a funeral or some small debts.

You may also choose to take out a second life insurance policy to cover a specific life event, such as having children or taking out a business loan. For example, you could take out a second term life insurance policy that offers financial protection for your children until they become adults. Alternatively, you could take out a second policy that will cover your debts if you die before a loan is paid off.

Another reason to take out a second life insurance policy is to form part of a larger financial plan, known as a "ladder strategy". This involves purchasing several term life insurance policies with varying term lengths, which expire at different rates as you pay off debts. This strategy can enable you to pay a lower premium than you would with a single high-coverage policy. However, it is important to note that this approach typically requires complex planning and is best done under the guidance of a licensed financial advisor.

Before taking out a second life insurance policy, it is important to consider the potential hazards. Applying for multiple policies at once may make it more likely that your application is rejected, as insurers may become suspicious that you are trying to get a very large amount of coverage. Therefore, if you want to purchase multiple policies, it is recommended that you work with an insurance broker or agent who can help you manage the process.

Purchasing a new permanent policy

Purchasing a new permanent life insurance policy is an option if your term life insurance is expiring and you still need coverage. Permanent life insurance, also known as whole life insurance, provides coverage for the remainder of your life, whereas term life insurance only covers you for a set period, typically between 10 and 30 years.

Permanent life insurance policies include a cash value component, which means that a portion of your premium payments can grow over time. This cash value can be borrowed against, used to pay your premiums, or surrendered for cash to supplement your retirement income.

When you purchase a new permanent life insurance policy, you will likely be required to undergo a health exam. The premium you pay will be determined by your age and health, so the younger and healthier you are, the lower your premium is likely to be.

If you are considering purchasing a new permanent life insurance policy, it is important to shop around and compare different policies to find the one that best fits your needs and budget. You may also want to consult a financial professional to help you understand your options and make the right choice for your situation.

It is also worth noting that permanent life insurance policies are generally more expensive than term life insurance policies, so you will need to factor this into your decision-making process. However, a permanent policy can provide you with lifelong coverage and the peace of mind that comes with knowing your loved ones will be financially protected no matter when you pass away.

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