After all, your life has likely changed quite a bit in the last 10 or 20 years. What kind of protection does your family need now? Can you extend your current policy – and should you?
This article will help you answer those questions by telling you about:
What is a term life insurance policy? Exactly what its name implies: A life insurance policy that provides coverage for a specific term or period of time, typically between 10 and 30 years.
While a universal and whole life insurance policy provide permanent coverage with a cash value component1, a term policy is a pure life insurance product designed only to give your beneficiaries a payout if you pass away during the term.
If your policy’s term is coming to an end, you can just let the coverage expire and go without life insurance. That is an option that some people choose, especially if their children are mature and financially independent, and there are enough saved assets to take care of their spouse or partner. If your family still needs the financial protection of life insurance, however, you have three basic choices:
1 - Extend your current term policy
Technically speaking, you can usually keep on renewing your policy on a year-to-year basis until you are 95 years old. That’s because most term life policies have guaranteed renewability feature that lets you extend your coverage – and current death benefit – without going through a new underwriting process and getting another medical exam. However, the insurance company will change your premium if you extend. While this can make sense for some people, it may not be the best choice for most. (We’ll explain why in the next section.)
2 - Convert your term policy to a permanent policy
Many term life policies sold now contain a conversion option or rider, which lets you convert your term policy into a permanent policy without having to provide evidence of insurability (i.e., getting a new medical exam). Different insurance companies have different ways of handling term-to-permanent conversion, so you’ll need to look at your policy to see what your available options are. For example, some companies will let you convert to a universal life policy but not a whole life policy. There will be a specific deadline as well: some insurers let you convert at any point during the term of your policy; others may only let you do so during the first few years of coverage, or until a certain age. This may be an attractive option, but you should begin the conversion process well before your term expires – at least a year before your policy’s stated conversion deadline.
3 - Get a different life insurance policy
Think about how your life has changed. Maybe you have more savings and don’t need the same amount of life insurance coverage. Or maybe you have a bigger family and need more. The type of policy that was right for your needs 10, 15, or 20 years ago may not be the best choice for your current needs today. This can be an opportunity to fix that.
Assuming the coverage amount on your current term policy is still right for you, your policy’s guaranteed renewability clause can be extended (if your policy has such a clause). The insurance company, however, can and typically will raise your premium.
- Pros: One reason some people consider taking advantage of a term policy’s guaranteed renewability feature is because it may be the only way to continue having life insurance due to a change in health. If someone has been diagnosed with a terminal or life-shortening illness, they may not qualify for a new policy that offers a substantial death benefit. For people who find themselves in this difficult situation, extending a term policy can sometimes be the best way to provide financial confidence for their family.
- Cons: As noted, the insurance company will typically raise premiums once the term is expired. And as the renewal is year-to-year, the premiums will generally increase more every year after. For many people, this is only viable for a few years at most.
Convert your term policy to permanent life insurance: The pros and cons
This could be a good option, but before we go into the advantages and disadvantages, it’s a good idea to recap some of the differences between term life insurance and permanent life insurance.
The most obvious difference: a permanent policy is designed to provide coverage you can’t outlive, as opposed to a limited term of, say, 10 or 20 years. Unlike term policies, permanent (universal and whole) life policies are not a “pure life insurance” product – they include a cash value component. A portion of your premium dollars are invested, and this sum grows over time. Once it grows into a useful amount, you can borrow money against your policy’s cash value, use it to pay your premiums, or even surrender it for cash to supplement your retirement.2 Here are the key reasons to consider exercising your policy’s conversion option – or not.
- Pros: When you convert a term policy to whole life, you don’t have to provide evidence of insurability or undergo a medical exam. If you’ve been diagnosed with a chronic, but not necessarily life-threatening illness, conversion could be the best way to get substantial long-term coverage, because over time it can be more affordable than a term policy extension. For example, if you’ve been diagnosed with atherosclerosis and have had one or more stents put into your coronary arteries, you could well live another 20 or 30 years. At the same time, it might be difficult or impossible to get another life insurance policy (other than a limited final expenses policy).
- Cons: You may have a limited set of permanent policy options available to you. For example, you may have to get a universal life policy which is a little more complex than a whole life policy. And no matter which kind of permanent policy you convert to, the premiums will be higher, assuming the death benefit stays the same. However, converting to a permanent policy with a lower death benefit could be a way to hold down the cost.
Get a different life insurance policy: The pros and cons
If you are still in good health and want a substantial level of coverage (as opposed to limited final expense coverage) you can shop around for a new term-life policy.
- Pros: This may be the most affordable way to get the same death benefit you had before. Another advantage is that you don’t have to get the same level of coverage. If your needs have increased or decreased, you can adjust the death benefit level accordingly.
- Cons: You will have to provide evidence of insurability by getting a new medical exam. And even if you’re just as healthy as you were when you got the previous policy, you can expect to pay more because you’re older and have fewer years of life expectancy. Even so, this will likely be your most cost-effective coverage option.
If you want to extend or convert your current term policy, talk to your life insurance company, agent, or broker well before it expires. Make sure to find out about the types of life insurance policies available, costs involved, and if you’re thinking of conversion, what specific options are available to you. If you have a portable term life policy that you bought through your employer – or you’re not sure who the financial representative or broker was – take a look at your policy and contact the company directly.
If you’re thinking of getting a new policy, shop around a bit. A good place to start: get an instant quote from Guardian using our calculator. If you have an agent or financial professional, you can also speak with them.
Another option is to check with your HR department to see if group term life insurance coverage is available through your company. While the benefit may be limited, it could be enough for your current needs – and the rates will likely be attractive.
I converted my term policy to a permanent policy some time ago, but I want more coverage now. Can I get a second term policy?
Combining a permanent (whole or universal) policy with a term policy can be one way to get the higher death benefit and additional coverage you need for a limited period of time – for example while your children are still at home.
I’ve decided to get a new term policy. Should I get the same level of coverage I had before?
There’s no good way to answer that without taking a look at your current situation and assessing who is relying on you for protection. Guardian can help you calculate how much coverage you may need and give you an instant quote online – or we can put you in touch with a financial representative who can provide a more detailed estimate of your needs.
Converting my term policy is not an option for me. Should I consider getting a different permanent life policy after my term policy expires?
That is an option that many older people choose, because a whole life policy can be a tax-advantaged estate-planning tool. It can also make sense for younger people with children still at home – especially for those who want protection they can’t outlive. However, the premiums can be higher than they would be for a term policy with the same death benefit. A Guardian financial representative can help you better understand your options.