What Happens When Term Life Insurance Expires

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Picture it: 10, 20, 30 years ago. Your past, responsible self purchased life insurance that would keep your family covered through the length of your mortgage and your kids’ college careers. The good news: You outlived the policy and your loved ones never had to file a claim. The bad news: Now that the policy’s expiring, you need to evaluate your options, in order to keep your financial security. Here’s what to consider when your term life insurance expires.

Evaluate your needs

Many use life insurance as replacement income in the event of premature or unexpected death. Although retirees won’t have an income to replace in the traditional sense, there may be other reasons that a policy would make sense. In fact, nearly two-thirds of those 65 and older still have life insurance, likely due to one or more of these scenarios:

  • You are still working (or drawing income from another source)
  • You haven’t yet paid off your mortgage or have other debts
  • You are caring for a child or another dependent, like an older relative
  • You have a child with special needs or a disability who will require lifelong care
    • Note: Life insurance can fund a special needs trust to provide for your child after your death. An estate planning lawyer can help.
  • You want heirs to benefit from your life insurance payout or to have additional income with which to pay estate taxes and/or final expenses

Scenarios and situations vary, but the important question is the same for all: If you passed away suddenly, would your loved ones face any financial hardship? If so, you may want to renew your policy or acquire new coverage.

Consider the pros and cons

If you realize the need for continued coverage, you have options to choose from.

Extend your current policy

You can likely extend your current policy on a year-by-year basis until the age of 95 (contact your insurance company or review your policy for details). While a medical exam may not be needed, the price for renewable term life insurance could jump each year significantly. This option could be the best choice for those with limited financial responsibilities that may be paid off in the next year or two.

Buy a new term policy

If you’ll require coverage for more than a couple of years, assess your needs directly: How long until you retire, for example, or until your children have finished school? Align your answer with a term policy—maybe as short as five years or as long as 20. When you apply for a new policy, you’ll likely need to answer questions about your health and take a medical exam. Prepare for a certain degree of sticker shock in light of inflation and age, especially if you’re not as hale and hearty as you were when applied for your first policy.

Convert to permanent insurance

True to its name, permanent insurance will last for the rest of your life. Whole life—which has a fixed premium, investment return, and death benefit—is the most common and simplest type of permanent life insurance. It’s also the type that most insurance companies will allow you to convert a term policy into. Review the conversion provision in your policy document or reach out to your agent for details. Your premiums after conversion may rise, and conversation from term to permanent generally has to happen before the former expires, and typically before age 75.

Buy a new permanent policy

Depending on your age and health, you may find that signing up for a new permanent policy entirely (potentially with a different carrier) is more economical than converting your existing term plan.

Buy a “final expense” policy

If you have adequate savings, little-to-no debt, and no dependents, you may not need for a traditional policy. Yet with many funerals now costing more than $10,000, a final expense policy can assist your family during a time they need it most. Coverage rarely extends north of $25,000, but as a result, monthly premiums are low. (Related: Do You Need Burial Insurance?)

No matter what you decide, you’ll want to shop around, as prices tend to escalate depending on age and health. And like any other estate planning matter, anticipating your life insurance need ahead of time (i. e., long before your term policy retires) and doing the necessary research early on will yield the best results.

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