Paul Sanchez
Term life insurance is a guaranteed benefit paid to the insured's beneficiaries after death. It is a relatively inexpensive way to provide money for your family if you die. When your insurance term is about to end, you'll need to decide what to do next. You may choose to extend the policy on an annual renewable basis, buy a new term policy, or convert it to permanent life insurance. Some insurers don’t require a new medical exam to renew or convert coverage, but premiums will usually increase. You could also choose to go without life insurance if you no longer need it.
| Characteristics | Values |
|---|---|
| Term life insurance | Guaranteed life benefit paid to the insured's beneficiaries after death |
| Term length | 10, 15, 20 years or more |
| Premium | Based on a person's age, health, and life expectancy |
| Renewal | Possible for an additional term |
| Convertible term life insurance | Allows you to upgrade a term life policy |
| Convertible term life insurance | Allows you to convert to permanent life insurance without a new medical exam |
| Permanent life insurance | Remains in place as long as the policyholder makes the premium payments |
| Permanent life insurance | Includes a cash value account that can build up over time |
| Permanent life insurance | More expensive than term life insurance |
| Increasing term life insurance | Death benefit payout increases over time |
| Increasing term life insurance | Premiums often increase yearly |
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What You'll Learn
Convert to permanent life insurance
When your term life insurance is up, you may be able to convert all or some of it to permanent life insurance. This is a valuable option if your health has deteriorated, as your current health won't affect the premium on a permanent policy or your insurability. Additionally, if your budget has increased, you may now be able to afford the higher premium on a permanent policy. Permanent life insurance also has the added benefit of building cash value, as part of your premium goes toward the cost of insurance and part of it goes toward building cash value.
Convertible term life insurance allows you to change your death benefit to permanent and to take advantage of lower premiums for term life insurance with the option to convert the policy to permanent life insurance later on without taking a new medical exam. The primary features of the rider are maintaining the original health rating of the term policy upon conversion and deciding when and how much of the coverage to convert. The basis for the premium of the new permanent policy is your age at conversion.
If you choose a total conversion, the amount of your new coverage will be the same as you had for term insurance. For example, if you have a $250,000 death benefit through your term life insurance, your new permanent life insurance contract would also be $250,000. If you choose a partial conversion, you’ll convert just part of your existing life insurance. When you’re done, you’ll have stacked life insurance coverage—with both a term policy and a permanent policy active at the same time. This usually costs less in the long term than having permanent life insurance alone, because you still have some term coverage active. For example, if you have a $250,000 death benefit through your term life insurance, you could use $150,000 for your new permanent life insurance.
The type of permanent policy you choose to convert your term policy to will factor into your premium. The premium for a whole life insurance policy will be higher than the premium for a universal life insurance policy. It’s important to know what whole life insurance is so you can assess which product fits your needs best.
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Extend the policy annually
If you still need life insurance after your term life insurance policy expires, you can renew your policy annually. This is because most term life policies have a guaranteed renewability feature that lets you extend your coverage and the current death benefit without undergoing a new medical exam or going through a new underwriting process.
However, if you choose this option, your policy will automatically convert to an annual renewable term life insurance policy, and your premiums will increase due to your age at the time of renewal. This is because term life premiums are based on a person's age, and the insurance company will change your premium if you extend. While premiums for decreasing term life insurance policies remain the same, those for increasing term life insurance policies often increase yearly with the death benefit. This may cause your increasing term policy to cost more than a level term life insurance policy in the long run.
If you are unable to increase your income or cut expenses yearly to accommodate the rising premiums, this may not be a good option for you. Additionally, insurers tend to set a ceiling on how much the death benefit can increase. When it stops increasing, you may be stuck with that level of coverage for the remainder of the policy.
Extending your term life insurance policy annually may be a good option if someone has been diagnosed with a terminal or life-shortening illness and may not qualify for a new policy that offers a substantial death benefit.
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Buy a new term policy
If your term life insurance policy is about to expire, you can buy a new term policy. This is a good option if you still have short-term financial protection needs. You can purchase a new term life insurance policy with a level premium period, such as 10, 15, or 20 years. The premiums for these policies are typically based on factors such as age, health, and life expectancy.
When buying a new term policy, you can choose between increasing term life insurance and decreasing term life insurance. Increasing term life insurance policies have premiums that increase yearly, which can help keep up with inflation or rising lifestyle needs. On the other hand, decreasing term life insurance policies have premiums that stay the same, making it a good option for covering debts such as mortgages.
You can also consider convertible term life insurance, which allows you to upgrade to permanent life insurance later on without taking a new medical exam. This is a good option if your needs change over time and you want the flexibility to convert your policy. Additionally, some companies offer term life insurance with the option to renew annually, which can provide ongoing coverage if needed.
When purchasing a new term policy, it is important to compare different insurance companies and consider factors such as coverage amounts, term lengths, age restrictions, and conversion options. The best term life insurance companies typically offer low prices, an easy application process, flexible policy features, and good customer service. By considering these factors, you can make an informed decision and choose the right coverage for your needs and budget.
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Consider accidental death insurance
When your term life insurance is up, you could consider accidental death insurance. This type of insurance provides financial support for your loved ones if you pass away due to a covered accident. It is typically available for individuals aged 18 to 70, and the coverage is guaranteed, even for those who may not qualify for other types of life insurance due to age, occupation, or health conditions.
Accidental death insurance is often referred to as AD&D insurance and can be added as a rider to specific health insurance policies, including supplemental insurance, or even to life insurance plans. It is important to note that AD&D insurance only provides coverage in the event of an accident and does not cover deaths due to natural causes. The coverage amount for accidental death insurance depends on the company and is subject to their general rules and regulations. However, it typically includes benefits for accidental deaths and dismemberments, which may include the loss of a body part or the function of a specific body part, such as vision, hearing, or speech.
The cost of accidental death insurance is generally lower than that of comparable term or whole life insurance policies. The premium you pay is tied to the coverage amount you choose, with higher coverage resulting in a higher premium. Additionally, some policies offer increasing term life insurance, where the death benefit payout increases over time to help keep up with inflation or rising lifestyle needs. However, this may result in higher premiums that could make the policy more expensive in the long run.
When considering accidental death insurance, it is essential to carefully review the fine print of each plan to understand what qualifies as accidental death and dismemberment. Additionally, if you obtain AD&D insurance through your employer, you may lose coverage if you change jobs. To avoid this, you can purchase accident insurance independently to ensure continuous coverage regardless of your employment situation.
By consulting with an insurance agent, you can explore your options, clarify your insurance choices based on your individual situation, and select a plan that aligns with your goals and financial objectives. They can also assist you in keeping your plan up-to-date as your circumstances change.
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Go without insurance
If you choose to go without insurance, you will need to consider the potential risks and how you will mitigate them. Here are some key points to think about:
Financial Risk
Not having life insurance means your loved ones will not receive an insurance payout when you pass away. This may leave them with funeral costs, unpaid debts, and a decrease in their standard of living. If you have no dependents or financial commitments that rely on your income, this may be a lower risk. However, if you have a family or others who depend on your financial support, the lack of insurance could place a significant burden on them.
Peace of Mind
Life insurance provides peace of mind by ensuring your loved ones are financially secure after your death. Without insurance, you may feel uneasy about the potential financial strain on your family or the possibility of them struggling to cover your end-of-life expenses.
Cost of Insurance
Term life insurance premiums are generally lowest when you are young and healthy. If you decide to go without insurance now and change your mind later, the cost of insurance will likely be higher. Additionally, if your health deteriorates, you may find it more challenging to obtain insurance or be faced with higher premiums due to increased health risks.
Alternative Options
If you decide not to renew your term life insurance, you may want to explore other insurance options that better suit your current needs. For example, burial or funeral insurance can help cover the costs of your end-of-life expenses without providing a full life insurance payout.
Probate Process
Without life insurance, your assets will be distributed through the probate process. A judge will determine how your assets are divided among your surviving family members. This process can be time-consuming and may not result in the distribution you would have preferred.
In summary, choosing to go without life insurance may be a viable option if you have no dependents or financial commitments. However, it's essential to carefully consider the potential risks and how they might impact your loved ones. Exploring alternative insurance options or other financial strategies to mitigate these risks may be worthwhile.
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Frequently asked questions
Term life insurance is a guaranteed life benefit paid to the insured's beneficiaries after death. It is usually the cheapest way to get coverage and is typically much cheaper than permanent life insurance.
When your insurance term is about to end, you'll need to decide what to do next. You may no longer need insurance if you're certain the people you care about won't need financial protection. However, if you still have financial obligations, you may need to extend the policy, buy a new term policy, or convert it to permanent life insurance.
Some insurers allow you to renew your coverage each year for a set length of time or up until a certain age, but premiums typically increase with age. This is known as an annual renewable term or yearly renewable term.
Some companies allow policyholders to convert term insurance to permanent life insurance, which remains in place as long as the policyholder makes the premium payments. The conversion may be limited by a time period or age, and the amount of insurance coverage provided may be restricted. The premium is typically higher than term life insurance, but you can convert without a new medical exam.
There are several types of term life insurance, including convertible term life insurance, increasing term life insurance, decreasing term life insurance, and group term life insurance.
