What Happens When Your Term Life Insurance Policy Expires?
There are many scenarios that can happen when your term life insurance expires. Term life insurance polices come with expiration dates (ex. 10, 20, 30 years). When you apply for a term life policy you choose the length of term you want and when that term expires your premiums will skyrocket. So this is what you should do.
Term life insurance policies offer level premiums, which means the premiums do not change for the length of term you choose. However, after the level term period expires then you can be faced with premiums that you can no longer afford. So here are your options if this happens to you.
As acts of omission or commission, it is important to know what these different outcomes are; it is critical that you understand how each option can produce its own distinctive result, so you are aware of all the consequences associated with each choice.
Option One: Let Your Term Life Insurance Expire
The first option is very straightforward: You can let your term life insurance policy expire. This deliberate choice is an act of omission – you choose to passively allow the policy to lapse – because, for personal or professional (or financial) reasons, this particular type of term life insurance is no longer what you need or want.
For example: You may no longer be able to afford to renew the poliucy because the premiums are too expensive, or, based on your review of your immediate and long-term goals, this brand of term life insurance is not ideal for you.
Also, if you are in good health you may be able to buy a new term policy at a much cheaper rate.
Option Two: An Annually Renewable Term Life Policy with Skyrocketing Premiums
Just because your level term period is up does not mean the policy will automatically expire. Each term policy will allow you to continue the term policy on an annual renewable basis. The problem with this is the premiums go through the roof.
You are better off trying to qualify for a new term policy if you are still in good health. If your health has changed then you should see about converting your level term to a whole life policy. Most term polices come with a conversion option bugly in.
Look at this example: Someone who bought a 10 year level term life insurance policy, and then wants to renew his or her policy for another year, would go from a total annual premium of $158.68 to $1,463.42! That change is nearly a tenfold spike – once your level term policy is up.
Below is a real life illustration of how the premiums increase after a level term period expires. This illustration was for a 35 year old female and you can see at the end of the 10 year term the premiums are much higher.
The numbers are even more devastating, when you compare premiums for someone who is his or her fifties or older. Take a look at what happens to the premiums when a level term expires in your 50’s.
Additional challenges develop because, through a combination of factors such as your individual health and projected life expectancy, you still need some form of term life insurance. If, upon doing these calculations and reviewing your overall finances (and presuming you do not become ill or impaired), it may make sense for you to buy a new term life insurance policy.
Option Three: Convert Your Term Life Insurance Policy to Whole Life
This option is a direct way to convert your term life insurance policy into a permanent whole life policy. Start this process by checking the conversion rules governing your current term life insurance policy. The good news, as you may soon discover, is this: You may be able to convert your policy without having to prove your insurability.
This advantage is significant because you do not have to furnish proof of good health. So, were you to become ill or were a doctor to diagnose you with a major medical condition, you can convert your term life insurance into a permanent policy – without any underwriting guidelines.
Your new premium would reflect your attained age. So if your now 50 the new permanent rates would be based for a 50 year old.
Again, this asset is a huge option in your favor if you get sick and can’t qualify for new coverage.
Option Four: Replace Your Time Life Insurance with a Cheaper Policy
In this scenario, presuming you are still healthy and meet the underwriting guidelines, you can apply for a new term life insurance policy or a permanent policy. The upside with either decision is that the cost will be far less than the price of the renewal premium of whatever term life insurance you now have.
So if you want to see the cost of and get quotes you can do so here.
Option Five: Lower Your Death Benefit
Insurers often offer a one-time reduction in the face value of your term life policy, which is a way to lower your premiums. With regard to your specific term life insurance, contact your respective insurer about the rules involving this decrease in your death benefit
Reminder: Get the Facts and Do Your Due Diligence
The overarching theme to this discussion is options, plural, where you have the freedom to choose – by virtue of a set of active or passive responses – how you want to handle your term life insurance situation.
In each circumstance, the important thing is to have the facts – all of them – so you can base your decision on your individual goals, financial, medical or otherwise.
Along with the counsel of an experienced independent life insurance agent, you can select the option that most appeals to your needs; you can act, with intelligence and wisdom, to ensure the outcome matches your intended expectations.
As always, do not hesitate to get the answers to any questions you may have regarding term life insurance. That information should give you the peace of mind you expect to receive, and the satisfaction you deserve to enjoy.
This knowledge will help you, when it comes to deciding what to do – and why you should do something – involving term life insurance.