Many of us enjoy the “fire and forget” approach to a term life insurance policy, but eventually, that term will expire.
When this happens, it’s important to be proactive and not end up as one of the millions of Americans who don’t have life cover.
If you’ve purchased term life insurance at a previous time but are unsure what to do when your term life insurance policy ends, then read on to find our advice.
Reassess your situation when you term life insurance policy ends
When your term life insurance policy ends, it’s time to take stock.
You could be ten or twenty years on from when you first took out your policy. What’s changed in that time?
Are you in worse health? Do you have more dependents? Can you provide for the family who may survive longer than you?
You’ll need to think about these options to decide your next steps.
You may even find yourself in a position where no longer need life insurance. But with Americans now living longer than ever, you need to consider carefully.
Brush up on your terminology
- Term life insurance covers a fixed period of time at a lower premium than permanent insurance. It’s generally less complicated and pays out a predetermined sum to beneficiaries.
- Permanent life insurance runs indefinitely and represents an investment, as your payments contribute directly toward the payout to beneficiaries.
As a general rule, those who are younger and so have less disposable income take out term life insurance. It provides a safety net for their dependants while only demanding a small premium.
In theory, as we move into our later life we find ourselves with fewer dependents and more wealth. Permanent life insurance becomes more practical.
Work out what you need
It’s possible you won’t need life insurance at all when your term life insurance policy ends. Whether you do or not will depend on a few factors, which we can summarize as follows:
- End of life cover – The most immediate concern for your family will be to cover funerary costs, so be sure they’re well provided for. Modern funerals can be expensive. If you’re not confident they’ll be covered by your own estate, then life insurance is a no brainer.
- Debt – If you have any debt that can be passed onto your dependents, you’ll want to be sure they’re not paying out either from their own pocket (in the case of shared debts) or from your estate (in the case of debts recoverable from your person).
- Your dependant’s needs – Chances are you’ll be leaving dependents behind, whether they’re aging parents or your own children. Will their living costs be covered? Are there college fees and similar to think about? Will your partner be provided for in the future?
- Business needs – Should you own a business, you’ll need to give thought to how the company will manage after your death. Will it require funds from a life insurance policy to keep afloat? Whether your family will inherit the business or sell it on, there’s sure to be a period of transition.
Once you’ve given thought to these questions, you can start to decide on a way forward.
Shopping around or converting your policy
If you’ve reviewed your situation and decided that further life insurance is right for you, then it’s time to shop around.
With this chance to reassess, don’t automatically return to your current insurer.
A lot may have changed since you took your term life insurance, so shop around and see who can offer the lowest premiums or the greatest benefits to you.
Alternatively, you may decide to stick with your current insurer to convert your policy to permanent insurance.
You’ll need to check with your insurer whether there’s provision for this in your policy, and bear in mind that this is often only available at certain intervals.
Combining policy types
It’s possible to combine multiple life insurance policy types, so you may want to consider this an option when your term life insurance policy ends.
This is a good solution for those who like the idea of an accumulating insurance policy but who may be afraid they can’t afford the higher premiums which come with it.
By combining policy types, you can choose exactly how much to pay for each policy type. You can split the figures down the middle or give more weight to your term or permanent option as you see fit.
If you feel your life insurance policy won’t match your needs, now is a good time to take a look at riders.
Riders are bolt-ons you can add to an existing policy. While some come standard, expect to pay additional premiums for others.
Let’s walk through some of the most useful riders:
- Accelerated death benefit – usually included automatically, accelerated death benefit allows you to bring forward some of your insurance if you become terminally ill.
- Critical illness – Similar to the above but without the short-term life expectancy involved, the critical illness rider allows you to claim insurance for a number of conditions which you’ll find listed on the policy.
- Waiver of premium – If this rider is active, the onset of a total disability preventing you from working would ensure you no longer need to pay your premium.
- Return of premium – This rider grants a return on your premiums in the event you outlive your policy.
- Child protection – This rider covers the eventuality of losing a child and the resultant financial impact on your family.
- Guaranteed insurability – This rider opens up the possibility of purchasing additional insurance within your policy without the need to go through an additional medical evaluation.
- Term conversion rider – If you should decide to convert your term life insurance into permanent insurance, a term conversion rider will remove the need to undergo a medical evaluation.
There’s a lot to consider when your term life insurance policy ends, but with all of this in mind, you’ll be better informed to make your decision. If you need further advice, just get in touch with us and we’ll be glad to help. Alternatively, you can request a quote from us using the form on the right.