Options When Your Level Term Premiums are About to Expire
When you buy a term life policy, you pay level premiums for the duration of the term such as 10, 15, 20, 25 or 30 years. You might think that your coverage simply runs out at the end of the chosen duration, but that is actually not the case for most term policies. Most term policies will allow you to continue coverage to age 95, but your premiums will increase annually after the level premium duration expires. If you are coming up on the expiration date of your life insurance policy and you still need coverage, you have a few options. Here’s what you need to know if your level term premiums are about to expire.
Example Policy – Let’s say you purchased a 20 year term policy with a death benefit of $1,000,000 and an annual premium of $800. You would be required to pay level premiums of $800 per year for 20 years to keep the policy in force. But what happens on the 21st year? Does your coverage expire? Not necessarily. Your term policy has a “Table of Premiums” page (usually located at the end of your policy) that shows your premium schedule up to age 95. So in this case, the premiums will be $800 for years 1 through 20. Starting in year 21, the renewal premiums will increase substantially each year until age 95. That is how most term policies work.
What are Your Options When Your Level Term Premiums are About to Expire? – If you still need life insurance coverage and your level premiums are about to expire, you have a few options.
Replace Your Policy for a New One – If you have been able to maintain your health, this will most likely be the most cost effective option. Some life insurance companies are even a bit more forgiving to older applicants by offering more generous underwriting requirements for build, cholesterol levels and blood pressure. So if you have been able to maintain your health, you would most certainly be able to get a new term policy that would be more affordable than the renewal premiums on your current term policy. In fact, in many cases a new policy will cost a fraction of renewing your existing policy. In this case, you would secure a new policy first and simply let the old policy expire.
Pay the Renewal Premium – As previously mentioned, renewal premiums are quite expensive once your level premiums stop. If you only need coverage for a couple of more years, you could simply pay the renewal premiums until you no longer need coverage. This is not the most cost effective way to maintain coverage as renewal premiums for longer term policies will be too expensive for most policyholders. On the other hand, if the renewal premiums are affordable, it might be an option. If you have been able to maintain your health though, you should really look to replace your policy.
Policy Conversion – Almost all term policies are convertible to permanent coverage. You can usually do this without having to show proof of insurability. The rates for your new permanent coverage will be based on the health rating you got with your original term policy and your age at conversion. This is a great feature if your health has deteriorated and you want to lock in lifetime coverage at a better health rating. Not every insurance company uses the same conversion features. It is important to understand the conversion features of your current term policy as some companies will limit the permanent products available for conversion and the age at which you can convert.
Request a Decrease in Death Benefits – Some companies will allow you to decrease your coverage amount one time during the duration of your policy. This might make sense if you still need life insurance coverage when your level premiums are ending, but require a smaller amount of coverage. There are also products available that will allow you to continue paying the same level premiums but will automatically reduce your death benefit each year like Protective’s Custom Choice UL. Using the example policy above, let’s say you have a 20 year level term policy with a $1,000,000 death benefit and an annual premium of $800. If you need coverage after the 20 year level premium duration expires, you can continue to pay $800 annually and the death benefit will be adjusted downward automatically each year until you no longer need coverage or up to age 121. You will not have to show proof of insurability to continue coverage and you can cancel anytime. This is a good choice for those who want the option of being able to keep some coverage without seeing their premiums increase and for those who do not want to reapply for new insurance and go through underwriting again.
Conclusion – Are the level term premiums on your policy about to end and you still need coverage? If so, the good news is that you have several options you can look at to maintain coverage. If you choose a long enough duration when you buy your original policy, you should be in a position where you can simply let your term policy expire as you probably will no longer need coverage. Unfortunately, there are times when circumstances change and you may need to find a cost effective way to extend your current coverage. If that is the case, we can help. We will show you multiple options and help you determine the best way to continue your coverage. We shop over 40 of the top insurance companies to help our clients find the best coverage to match their needs.
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com. You can also visit our website at www.archstoneinsurance.com.
