For many families who purchase a 20-year term life insurance plan, they realize in nearing the end of the term, that they still need coverage. An ideal scenario when purchasing a term policy is that your family will have time to pay off a home, get kids out on their own, and save enough in retirement to be able to cover expenses if anything happens to you.
However, with more adult children moving home to cover student loan debt and many homeowners taking out a second mortgage, the need for life insurance exists even after the term expires. Continuing the same term policy after the initial period typically comes with a major premium increase, but there are other options. If your term life policy is nearing its end, here’s how to maintain coverage.
New Term Policy
Term life insurance is more affordable than it was two decades ago thanks to new medical insights that allow us to live longer. With an experienced life insurance agent, you can easily compare prices. As your term policy nears expiration, begin to explore new term coverage options. You’ll likely be able to obtain a 10-year term life policy for the same or lower premium cost as your current coverage.
You can elect a policy that offers “living benefits,” which allow you to access benefits early if you have a terminal illness. While early access to benefits may reduce the payout if you die, you’ll be able to cover medical bills and ongoing treatment to avoid leaving your loved ones with massive debt.
If your health is good, you may get a better deal by buying a new permanent life insurance policy rather than converting your term policy. There are different permanent policies to consider:
- Whole life insurance is a permanent policy that covers you for your entire lifetime and is designed for those who want to leave death benefits for their family – young families, parents with college tuition payments, families with a mortgage – to cover accumulated or anticipated debt. This policy earns cash overtime that you can withdraw (up to the amount you’ve paid in premiums) that will be subtracted from your death benefits.
- Guaranteed universal life premiums never change. Your family receives the largest death benefit for the lowest level premiums. This type of policy typically doesn’t earn cash but premiums are less expensive than whole life insurance.
Many companies offer policies that combine life insurance and long-term care coverage. You can access a portion of your death benefit to cover care if you need assistance with daily living like bathing, eating, or moving about your home. These policies are different from stand-alone long-term care policies in that the premiums typically can’t increase.
The best way to avoid scrambling to find life insurance coverage as your term policy expires is to choose the correct policy in your 20s or 30s. Permanent life insurance policies never expire, but it’s important to ensure you purchase enough coverage. Another option is to layer life insurance coverage. Purchasing a term life policy as well as a form of permanent coverage gives you peace of mind knowing your family is secured in the immediate and short-term future and then through the rest of your life.
Don’t wait until your term life insurance policy is nearing the end of its term to review your needs. You have more options while the policy is still active.