Weighing The Benefits: Navigating The Decision To Continue Term Insurance

Term life insurance is a contract between a policyholder and an insurance company that states that if the insured person passes away within the time period of the policy, the insurer will pay a death benefit to the beneficiaries named on the policy. When the term ends, the coverage ends. However, if you still need life insurance, you can either convert it to a permanent policy or buy a new term life insurance policy. The decision will depend on your coverage needs.

Converting to permanent life insurance

If you're approaching the end of your term life insurance policy and still need coverage, you can convert it to a permanent life insurance policy or buy a new term life insurance policy. The decision will depend on your coverage needs.

Reasons to convert to permanent life insurance

• You want to build cash value: Permanent life insurance policies allow you to withdraw money while you're alive, giving you the flexibility of an emergency savings source.
• You still need coverage at the end of your term life policy: If you're reaching the end of the term and realise you need the coverage to last much longer, converting to permanent life insurance is a good option.
• You're financially better off than when you bought your term life policy: As you age, you'll likely make more money and improve your financial situation. That's a good time to convert to a permanent life policy.
• You have health issues: You may not need to have a medical exam if you convert from a term life to a whole life policy.
• You have dependents who may need financial help after you die: Converting to permanent life can leave money behind for that person's care.
• Premiums remain the same for the rest of your life: Permanent life insurance locks in rates, so you won't have to worry about rate increases or needing to change to another term life policy.

How to convert to permanent life insurance

• Check your term life insurance policy to see if it includes the option to convert.
• Contact your insurance company to discuss what types of permanent life insurance are available and the conversion cost.
• Fill out a life insurance conversion application.
• Choose the amount of life insurance you'd like in the conversion.
• Choose how you'd like to be billed for premiums (annually, quarterly or monthly).
• Enter bank account information if you're setting up automatic withdrawals.
• Assign beneficiaries.
• Sign and submit the application.

Things to consider before converting to permanent life insurance

• You may have to add a conversion rider to your term policy, which could increase your term life premium.
• Your whole policy will cost more than your term policy once you convert.
• You may be limited in the types of policies you can convert to.
• You may have more options if you simply purchase a new policy.

Buying a new term policy

• Timing: It is recommended to shop for new coverage at least six months before your current policy expires to avoid a gap in coverage.
• Health: If you are still in good health, applying for a new term policy will likely be your best option. However, any new medical conditions that have arisen since your original policy was purchased will affect your life insurance costs.
• Rates: Since you are older now, your rates will be higher. The length of the term and the coverage amount will also impact your premiums.
• Needs: Recalculate your coverage needs and choose a policy with a coverage amount and term length that fits your current financial obligations. You will likely need less coverage than before.
• Riders: Consider adding riders to your new policy to enhance your coverage. Common types of riders include accidental death benefit, critical illness benefit, and disability income benefit.
• Comparison: Gather quotes from multiple insurance companies and compare their offerings to find the best policy for your needs.

Weighing financial obligations

When deciding whether to continue term insurance, it's essential to weigh your financial obligations and consider the following factors:

Dependents and Spouse:

If you still have dependents, including a spouse, who rely on your financial support, continuing term insurance or switching to a permanent life insurance policy can ensure they are provided for in the event of your death. This is especially important if you have children who are still minors or young adults who might need financial assistance for their education or other expenses.

Mortgage and Debts:

Consider whether you have large debts, such as a mortgage, that you want to ensure are covered in the event of your death. Term life insurance can help protect your loved ones from inheriting these financial burdens.

End-of-Life Expenses:

If you don't have enough savings to cover end-of-life expenses, such as funeral costs or medical bills, continuing term insurance or switching to a permanent policy can help alleviate this financial burden for your loved ones.

Income Replacement:

If your income is essential for supporting your family or paying off debts, term insurance can provide a financial safety net for them in your absence. This is particularly relevant if you are the primary breadwinner or have a non-working spouse.

Health and Insurability:

If your health has deteriorated or you've developed new conditions since purchasing your current policy, you may have difficulty obtaining a new policy or affordable coverage. In this case, continuing your existing term insurance or converting it to a permanent policy might be a better option.

Budget and Affordability:

Permanent life insurance policies tend to be significantly more expensive than term life insurance. If affordability is a concern, you may want to continue with term insurance or opt for a lower death benefit amount. Additionally, consider your budget and financial obligations to determine if you can afford the higher premiums of a permanent policy.

Long-term Financial Needs:

Evaluate your long-term financial needs and goals. If you anticipate needing life insurance coverage for an extended period, a permanent policy might be more suitable. However, if your financial obligations are temporary or short-term, term insurance might be a more cost-effective choice.

Remember, when deciding whether to continue term insurance, it's crucial to assess your unique financial situation, including your income, debts, health, and the needs of your dependents. Consult with a licensed insurance agent or financial advisor to help you make an informed decision based on your specific circumstances.

Considering family circumstances

Term life insurance is a contract between a policyholder and an insurance company that states that if the insured person dies within the time period of the policy, the insurer will pay a death benefit to the beneficiaries named on the policy. It is usually the most affordable option when you want life insurance to cover financial obligations that are temporary.

When you are considering whether to continue with term insurance, it is important to take your family circumstances into account. Here are some factors to consider:

• Financial Dependents: If you have family members who are financially dependent on you, such as a spouse, children, or parents, it is important to ensure that they will be provided for in the event of your death. Term life insurance can provide a financial safety net for your loved ones, covering expenses such as daily living costs, education, and outstanding debts.
• Income Replacement: Term life insurance can be used to replace lost income if you are the primary breadwinner in your family. This can help your family maintain their standard of living and cover essential expenses.
• Outstanding Debts: If you have outstanding debts, such as a mortgage, car loan, or credit card debt, term life insurance can help your family pay off these obligations in the event of your death.
• Future Expenses: Consider any future expenses that your family may incur, such as your children's education, marriage, or starting a career. Term life insurance can help ensure that your family has the financial resources to cover these costs.
• Age and Health: Term life insurance premiums are based on your age and health, among other factors. As you get older, premiums tend to increase. If your health deteriorates, you may find it more difficult and expensive to obtain term life insurance. Therefore, it may be beneficial to continue your existing policy rather than taking out a new one later.
• Peace of Mind: Term life insurance provides peace of mind for both you and your loved ones. Knowing that your family will be financially secure in the event of your death can reduce stress and worry.

When deciding whether to continue term insurance, carefully assess your family's financial needs and consider seeking advice from a financial professional to ensure you make the best decision for your circumstances.

Assessing health and age

Age Limits for Term Life Insurance Policies

The age limits for term life insurance policies vary, with minimum entry ages typically starting at 18 years old and maximum entry ages ranging from 60 to 75 years old. The maximum age limit for term insurance plans is usually 65, but it can go up to 70 or 75 years old for some plans if purchased at a younger age.

Factors Determining Eligibility for Term Insurance

Insurers assess an applicant's overall health condition, including medical history, pre-existing conditions, and lifestyle choices, when determining eligibility for a term insurance plan. Older individuals have higher mortality rates, so providing life insurance cover for them is more costly for insurers. Consequently, insurers may limit policy terms and reduce death benefits for applicants approaching retirement age or experiencing deteriorating health.

Impact of Age on Term Insurance

Age significantly impacts term insurance as it is closely tied to an individual's life stage, financial goals, and health issues. Younger individuals may focus on paying off debts or saving for a house, while older individuals may be more concerned with protecting their savings and paying for healthcare costs. Health issues become more prevalent with age and can affect insurance availability and costs.

Benefits of Term Insurance for Different Age Groups

Term insurance offers benefits for individuals of all ages. Younger individuals can benefit from lower premiums and financial protection, while middle-aged individuals can use it to provide for dependents and pay off mortgages. Older individuals can utilize term insurance to cover debts and outstanding loans, ensuring financial stability for their loved ones.

Choosing the Right Term Insurance Policy for Your Age

When choosing a term insurance policy, it is crucial to evaluate your current financial situation, long-term goals, and requirements. Consider your income, expenses, debts, and savings to determine the necessary coverage. Additionally, assess your life stage, such as having dependents or planning for retirement, to choose a policy that aligns with your needs. Review the policy features, benefits, and premiums to make an informed decision.

Term Life Insurance Rates by Age

Term life insurance rates increase with age. For example, the average cost of life insurance is $31 per month at age 25 and jumps to $593 per month at age 65. The rates also vary between genders, with men paying higher premiums than women due to shorter life expectancies. Smokers also pay significantly higher premiums than non-smokers.

Frequently asked questions