Written by Demi Oye
“All good things must come to an end. Fortunately, this doesn’t apply to term life insurance policy!
Like the super bowl finals, Term life insurance needs no introduction.
Everyone with access to basic information knows that life insurance is the smartest way of protecting your family from life’s uncertainties.
While some analysts will opine that you won’t need insurance after a 20-year term. They may try to convince you that your children will be grown and you will have accumulated enough savings in cash and investment to support your spouse if you die prematurely.
Yes, in theory, it sounds like quite the hack. But it is important to understand that only a few people will have such a defined, and hassle-free life path.
Getting life insurance is a must for every individual that truly cares about the affairs of their family when sudden death occurs.
Now, you get your life term insurance policy gears on and set out to get an amazing deal from a reputable term life insurance company.
Have you imagined – what happens when your life term insurance policy runs out?
When people buy term life insurance, they rarely give much thought to what would happen when their term runs out.
Term Life insurance usually has an expiration date. It lasts for a specific time range or term period. When you purchase a policy, the term period is set for 10, 15, 20, 25 or 30 years.
What Does Expiration in Term Life Insurance Mean?
Expiration in Term Life Insurance is a little different from the conventional meaning of “expiration”
When your policy reaches the end of its term, your policy won’t just end.
This is where it gets interesting.
If you look into the details of your policy, there is a table that shows the cost on a year to year basis. This table that shows the yearly cost is usually called a rate or premium illustration.
For example, if you purchased a 20-year policy, you will notice a relatively higher price increase on the 21st year after your 20-year term has expired. The cost after the 20th year will continue to increase significantly, year after year.
Now, you can put a stop to this if you no longer want the policy beyond the low-cost guarantee period. You can contact the insurance company that you want to cancel the policy at the end of the term. If you wait to see it out, you will continue to get debited without warning.
Some people switch to paper check payments after the expiration of their policy to avoid the risk of getting their checking accounts debited.
So, one thing to note is that your policy is not actually expiring. Most policies will cover you until you the age of 95. Your rate will only continue to increase rapidly at the end of each term (year, quarterly, or biannually or monthly), often to a point where the coverage is no longer worth the premium you will dole out.
The Relationship Between Term Life Insurance & Increasing Premiums and ART
First and foremost, let’s get this out of the way -Every year you live makes you a little more of an insurance risk to insurance providers.
So, if you are at age 45; you buy an annual renewable policy, your premiums will rise annually as you are one year closer to death, natural or sudden.
This kind of policy is known as an Annual renewable term (ART)
ART premiums might look like this for the first few years:
1st year might be $340
$465 in the 2nd year
$475 in the 3rd year
10 years down the line, your premium may climb to $650 per month for coverage! This simple example illustrates why people tend to shy away from Annual Renewable Term.
Because of the low demand for ART, Many Insurance providers offer level term Insurance policy. They can cover you until age 95 but at a fixed premium rate for 10, 15, 20, or 30 years
Calculating Level Term Premium – It’s a Simple Average
To determine your level premium, life insurance providers add up the payments for each year in the 20-year term and divide it by 20.
In most cases, 20-year level term life insurance is the average premium for the first 20 years of coverage.
From the 21st year and above, it reverts to an annual renewable policy (ART).
What to Do when Your Term Life Insurance Policy Expires?
- Shop for a New Term Life Insurance Policy
If your state of health is rock solid or relatively good enough, it is time to shop for a new level term insurance. Yes, you will have to pass a medical exam in most cases and pay the standard amount for an individual within your age range. You may not need as large a policy as the first one you purchased when you were much younger. This means the price will not be overwhelming.
Hold on to your wallet and look for another insurer who may be offering something cheaper. If you’re shopping around for rates for a new policy, be sure to consider one with Low Renewal Premiums!
A good source for doing your comparison analysis shop is the website http://term4sale.com/
- Converting Term Policy to Permanent Insurance
If you have a poor health condition, much older (usually and do not want to undergo any form of medical examination, you can convert your existing term policy to permanent insurance. Your insurance company will offer you different conversion policies to choose from. Converting to permanent insurance plus your health state means you will pay much more than when you were paying for term life insurance (Depending on your insurer, it is usually about 2-3 times the cost of your current premium). The good part is you can control the cost by purchasing a smaller policy. This is a good fit since you are older and don’t need many years of coverages as you once did.
Time is of the essence. You must convert within the period the term policy allows you to. Some insurance providers keep the conversion window open for only 10 years if you had purchased a 20-year policy. It is also important not to convert too early. Always stay updated on the details of your policy and check with your agent to be sure you are getting the best coverage at the time.
3. Renewing or Extending Your Expired Term Life Insurance
If you are in a poor state of health and happened to miss the deadline for converting to permanent insurance, there is still an option for you – a rather costlier option.
You can renew your about-to-expire coverage without undergoing a medical examination. You will only have to pay much higher premiums and they will keep increasing geometrically, year after year. This option is decent enough if you only need a few years, over 70, or have medical conditions that make it hard to get a new policy.
You probably won’t be able to sustain the cost of the policy for very long.
Think about future coverage well enough before the expiration of your term. If you think you won’t be able to pass a medical examination, you can convert your term policy to cash-value coverage while you still can.
a. Decrease Your Death Benefit –
Many insurance providers will allow a one-time decrease in face value to your life term policy. The result is a noticeable reduction in your premiums.
b. Sell Your Policy
If your policy is still convertible, you may be able to convert the policy and then sell it. It’s called a life settlement. It is important to identify when selling your life term policy is a viable option and when you might be getting shortchanged.
Before you jump into a life insurance settlement deal, you will have to come to terms with the fact that a third party will own insurance on your life and profit from it when you die (no benefits for your family after death).
Also, some individuals are better candidates for a life insurance settlement than others. For example; Having a term life insurance policy or a universal life policy with a face value over of over $200,000 makes your policy more attractive to investors. You are more likely going to receive a worthy offer.
Can You Sell Your Term Life Policy?
Yes, you can sell your Term Life Policy.
A life insurance settlement involves the assured and another entity (usually an investor). The buyer or investor becomes the owner of the policy, settles the premium payments and will receive the death benefits in the event of death.
A life insurance settlement (also known as a viatical settlement) allows you to receive more money than you would have received from the insurer if you canceled or forfeited the policy but less than the coverage value/death benefit of the policy.
Selling a life insurance policy is a good way to get immediate cash for retirement, health bills or unforeseen heavy expenses. However, it is not always the easiest or best option to raise quick cash at your point of need.
Finding a buyer for your life settlement involves a bit of documentation.
You can do this on your own or use a life settlement broker to look for prospective offers to purchase your life term policy.
You will be asked to provide medical records and your term life policy documents to the potential investor. The settlement provider(s) will make you an offer after reviewing your files based on a range of factors such as:
- Your age and health
- The type of policy you have
- The cash surrender value (accumulated cash value) of the policy
- Amount of premiums
If you are much older or in a poor health state, you will receive a better cash offer as the face value of your policy is worth more to investors or settlement companies as they are going to sense an avenue to make some profit.
Even though your term period has “expired”, your policy may still have value to you. If you find that you still need life insurance protection at this point, you do have options for extending, converting or renewing, selling the coverage. It is important to stay informed as making the wrong decision can cost you a fortune. Ask your insurance agent to explain the difference between various kinds of life insurance and figure a way out to opt for any of the five options listed above, depending on your needs, age and health state.
Demi is a professional copywriter, Author, and Digital marketing expert for businesses and startups. Demi also runs a copywriting and digital marketing agency called Liveandwingit with footprints in the finance, blockchain and marketing industries.. You can reach out to Demi at firstname.lastname@example.org.