Life insurance policies exist to financially protect the people you love the most in this world as a result of your passing. The policy itself doesn’t need much maintenance most of the time, but one important thing to keep in mind is when the duration of your coverage ends. Most of the time, your term life insurance policy will end before the claim has been paid — which leaves you without the protection for your family once this happens.
When your policy ends, you have decisions to make — what’s the next right move to keep your family protected? Is this coverage you’ve carried all these years still needed based on your current financial plan? You have three basic options — to renew the same policy, to alter your coverage/existing policy, or to not renew at all. Here are some ways to think about managing your policy choices so that you spend your money wisely.
Renewing the Same Policy
If your circumstances haven’t changed, renewing your current term life insurance policy is the simplest option available to you. After all, you already have coverage, and you’ve been paying for it all this time. Renewing the current policy simply entails paying the new premium the insurer has quoted you with no questions asked…just write the check. But, the new premium will generally be significantly higher than what you’ve been paying and the policy cost will now reset to a one year term policy with an annually increasing premium going forward. This automatic renewal option generally will not be a financially wise long-term life insurance option.
All this being said, it’s crucial to carefully scrutinize the details of your policy and the automatic renewal feature to ensure you’re fully aware of not only the new premium now and going forward but also any changes in coverage or exclusions that might have occurred during the policy’s automatic renewal once the original policy reaches its end of term.
Altering Your Coverage/Existing Policy
If you or your financial advisor determine life insurance is still needed as a part of your overall financial plan, you may want to look at acquiring a new term life insurance policy to replace the current term policy that has reached its end of term. This is certainly a viable option if you’ve had no changes in your health. In contrast to automatically renewing the current policy with an above marketplace rate and an annually increasing premium, the new term policy once the underwriting process including a medical exam has been completed will have a new guaranteed level premium over the new duration of term you’ve selected.
However, what if you’ve had a significant change in your health since the original policy was issued and you still have a financial need for this coverage…now what?? Is executing the auto renewal for your current policy the only option? Well, in these circumstances which I call the perfect storm (you still need life insurance, your health has significantly changed and you’ve reached the end of term), it may make sense to execute the conversion option as outlined in your current term policy. What this means is to convert the existing term life insurance policy to a new whole or universal life policy. Before going any further, let me be clear…we never recommend using life insurance as an investment strategy. The scenario I’m describing in these situations is using the least expensive life insurance option to mitigate the risk of loss of income due to your premature death resulting in a significant financial hardship for your family.
Before you make any changes to your existing policy or pursue a new term life insurance policy, be sure to speak with your insurance agent and/or financial advisor to confirm which option makes the most sense based on your overall financial situation.
When Not To Renew
The most common uses for a life insurance payout are to cover mortgage payments, make up for a loss of income, and to pay for any funeral arrangements. As such, if you’re retired and doing well financially, a life insurance policy may no longer make sense to continue. The goal is to eventually self-insure this risk. Ask your spouse/partner the following question, “If I died today without any life insurance, does this create any financial hardship for you?” If their response is “no”, you’re good!!
In general, it is Low Cost Life Insurance’s recommendation to coordinate the expiration of your life insurance coverage somewhere around age 70. We are happy to walk you through your policy options and help you make a wise life insurance decision while focusing on your best interests…first and always!
Find Experts You Can Trust
It is important when examining your new coverage options going forward to account for the past and the future. This can be difficult to do–no one can predict the future, of course–but it is helpful to think about where the next few years may take you. At Low Cost Life Insurance, we review every client’s policy annually to make certain we are still on the appropriate life insurance path. As I mentioned earlier, no one can predict the future but if we review your coverage each and every year and then make adjustments as we go, there will be no surprises when we reach the end of term on your policy.
Low Cost Life Insurance is here to help. Contact us today for your free consultation!