All good things must end. Here's what to do when your policy's time is up.
Most modern term life insurance policies do not expire until you reach age 95. Even though you may have a 10-year term life policy, your coverage will not end after ten years. What does end, however, is the “rate guarantee” on that policy.
The rate guarantee is what keeps your cost from increasing during the policy term. If you have a 10-year term policy, for example, the rate guarantee will expire in year eleven, and your cost will go up -- if you decide to keep the policy. More on that later. And not only will the cost go up, but it will also likely go way up!
Here’s an example of what the scheduled premiums may look like for a 10-year term life policy. A similar table will be included in your policy.
You can see how dramatic the increases can be. But remember, you’re not obligated to pay the higher rates. You have options, and here they are.
When your policy term expires, you will get a renewal notice from the life insurance company that states the new premium for the policy. At that point, you’ll need to decide whether to keep the coverage or let it go. Your decision will likely come down to two factors: (1) your health condition (a.k.a insurability) at that time, and (2) do you still need life insurance coverage.
First, we’ll assume you are in good health and can still get approved for life insurance. In this case, your options are:
Buy a new term life policy.
This is almost always (as in greater than 99% of the time) less expensive than keeping your existing policy.
- Pros: Less expensive; you can lock in a new rate guarantee.
- Cons: Requires a new application and exam; you must satisfy a new 2-year contestability and suicide period.
Keep your existing policy.
This is almost never a good idea if you can get a new one, but it is an option if you don’t want to bother with a new application.
But what if you are not in good health?
Your options will be more limited, but you still have some.
Keep your existing policy.
Remember, you’re no longer insurable due to changes in your health. If you decide you still need the coverage, you may have to endure the higher cost to get it.
- Pros: You do not need to prove insurability again; you can keep coverage going.
- Cons: Expensive; no rate guarantee means the cost will continue to increase each year.
Convert your policy to a permanent one.
Your policy “may” be convertible to a universal life or whole life policy. Make sure you contact your agent or the life insurance company before the term expires. Often these conversion privileges expire at some point, but almost always before the end of the term.
- Pros: Conversion does not require you to be in good health; you don’t need to complete an exam; you can secure lifetime coverage with a permanent policy.
- Cons: Conversion is expensive; expect to pay much more than you were paying for your term policy, but possibly less than the renewal rates to keep it.
When your policy reaches the end of the term period, we’ll be here to help. Here’s what we do for you at renewal time:
- We send you rates for a new term life policy so you can compare them to your renewal rates.
- We can also show you how conversions work and what it would cost for you to convert your policy.
- Help you with a smaller term policy (amount or length), help to convert a portion of your existing policy, or a combination of both.