Near the End of a Term Life Insurance Policy?
Term Life Insurance is a great choice to cover most insurance needs. Its economical, and with various term lengths available can be custom fit to meet your needs. But what should you do as your term policy approaches its final years of coverage? As with most situations – that depends on the individual. Let’s take a minute to cover some of the options that may be available. For the sake of simplicity though, let’s say you currently own a 20 year term policy with 5 years remaining. You are currently 55 years old, so you were 40 years old when you purchased it.
First we should look at possible conversion options. What converting means is that you can change your coverage from term to permanent – usually without any underwriting. Rules on when this right expires, and the possible products you can convert to vary carrier to carrier so be sure to check your term contract for applicable rules.
If you have had a change in health since you originally applied, converting might be the best route to take. Not only could you lock in coverage for the remainder of your life, but you can likely do so without answering health questions, taking medical tests and being underwritten again. Basically your new permanent policy would have the same rate class you had for your term policy.
For some, permanent coverage might be too expensive to afford. In such a case converting might not be the best option for you. Remember though, in 5 years you will no longer have any coverage. If coverage is going to be needed past that 5th year, purchasing new term coverage is something to explore. Taking this approach will mean going through underwriting again. Similar to the converting option above, take note of any negative changes in health you may have had. If your health has declined substantially, obtaining new term coverage might not even be possible (i.e uninsurable), or you may end up being rated highly thus making new term coverage unaffordable. If that’s the case take another look at conversion options.
The last option is simply to let the policy run its course. You may no longer need life insurance coverage – rare, but possible. To this point, this is why you should review your coverage annually. If with 5 years left on the term policy you determine you no longer need life insurance coverage cancel the policy at that point.
About the author: Seth Gowdy is the Sales Manager for Pivot Insurance and holds multiple insurance and securities licenses. He has been part of the financial services industry for nearly 20 years. In his free time he enjoys being outdoors fishing, hiking, and geocaching with his wife and two children. Seth most enjoys helping clients with Pivot’s anonymous life insurance quote process and needs calculators. You can reach Seth at 1-800-651-1953 or SGowdy@pivot.com.