If you’re like many people, you may have purchased term life insurance years ago to financially protect the people you care about. The right next step for you depends on where you’re at in life.
The term insurance basics
Term life insurance covers you1 at a guaranteed level premium for a specific period outlined in the policy (the “term”). Typical terms may range from 10 to 20 to 30 years. When your insurance term is about to end, you'll need to decide what to do next.
You may think that once the term ends, you’ll have fewer financial obligations and insurance won’t be as important. If you’re certain the people you care about won’t need financial protection in another 15 or 20 years, that may be just fine.
Sounds reasonable, right? But life often doesn’t go according to plan.
Questions to ask yourself when your term policy ends
Since you first took out your term policy, has your life situation changed?
- Do you have dependents?
- Do you have a large mortgage or other debt?
- Are you in good health?
- What shape is your budget in?
- What are your plans for the future?
- Do you want to leave financial assets to your heirs?
- Do you have a child with special needs who will need financial support after you’re gone?
You may have different financial obligations like these than you did before – and you still may need life insurance. Here are six life insurance options you can consider when your term policy is about to end.
1. Make the same choice again
You could apply for a new term insurance policy. Or if the policy allows, you could continue your current policy as an annual renewable term. But keep in mind, you’ll pay higher premiums, since you’re now older compared to when your original policy began.
You may need to prove you’re in good health and undergo a medical exam. If you’re not in good health – if, for example, you’ve developed high blood pressure, high cholesterol or had other health issues – you could be turned down for insurance or face much higher premiums.
2. Convert to permanent life insurance
Some companies allow policyholders to convert term insurance to permanent life insurance. There may be a limited time period or an age by which the policyholder must make this change. The amount of insurance coverage provided under the conversion may be limited.
But with permanent life insurance, the insurance remains in place as long as the policyholder makes the premium payments required to keep the policy in force. Part of the premium goes into a cash value account that can build up over time.
3. Start over with a new permanent life insurance policy
You could apply for a permanent life insurance policy with an insurance amount that fits your needs and budget. You would likely be required to undergo a health exam, but once approved, you would have lifelong insurance coverage as long the policyholder pays the required premium.
The cash value part of the premium can grow over time, providing funds that can be used while you’re alive.
4. Mix it up: have both term and permanent life insurance
This doesn’t have to be an either/or choice. You could purchase term life insurance to cover a specific obligation, and a permanent policy for lasting insurance protection. For example:
- Apply for a term policy amount to fit the length and amount of your mortgage.
- Apply for a permanent policy to pay additional benefits to your spouse and children if you die.
- The permanent policy may also build cash value you could use while still living.
Accidental death insurance: Another insurance choice
What if you don’t qualify for term or permanent life insurance because of serious health issues? Accidental death insurance could be a solution. It often doesn’t require a health exam and premiums are typically lower than term or permanent insurance premiums.
But these policies only pay a benefit if a death is the result of an accident. For example, they don’t pay benefits if death resulted from cancer or a heart condition, which are the two most common causes of death in the United States.2
5. Look into buying life insurance at work
Life insurance offered through your employer is typically “group insurance,” meaning one policy covers a defined group of people (in this case, you and other people who work for the same organization).
Many employers automatically provide a basic level of life insurance – usually equivalent to about one year of your salary. In fact, you may not even know you have it, since many employers pay for this coverage on your behalf and do not deduct it from your paycheck.
Employers also typically provide the opportunity for you to enroll for additional coverage that you pay for through payroll deduction.
6. Choose life insurance with additional benefits
Some life insurance companies offer policies that can help pay for long-term care expenses.
As the population ages and health costs continue to rise, policies that include these options are becoming more popular. When the insured dies, the amount that hasn’t been used typically goes to the policy’s beneficiary.
Consulting a financial professional is always a good idea
If your term insurance policy is about to end, you may want to talk to a financial professional so you can better understand the choices you have, how they fit your needs and plans, and determine the right life insurance option for you and your family.