What to do when your Term Life Insurance is expiring
In an ideal world, you buy life insurance when your
kids are young or you’ve purchased your first home,
and you need the coverage only for about 20 years. By
the time your policy nears the end of its term, your kids
are on their own, your house is mostly paid off, and
you’ve accumulated enough money in retirement
savings for your spouse to pay the bills if anything
happened to you.
But these days, many people in their fifties are still
supporting grown kids who graduated with student loan
debt, or they’ve refinanced their mortgage and
locked in a new 30-year term. They may have been
divorced and are now supporting a new set of kids. Or
they still haven’t saved enough to retire comfortably.
Their coverage is about to end, but they still need the
security that term insurance provides.
“This is happening to thousands of people because 20-
year term insurance first became popular about 20
years ago,” says John Ryan, CEO of Ryan Insurance
Strategy Consultants in Greenwood Village, Colo., who
works with fee-only financial advisers. Even though
you can keep your policy beyond the initial term, the
premiums jump enormously, and continue to increase.
A 37-year-old man in good health who buys a
$500,000 20-year term policy could pay about $360
per year for 20 years. But in year 21—at age 57—the
premiums jump to $6,900 or more depending on the
company, says Byron Udell, CEO of AccuQuote.com,
an independent insurance brokerage.
Fortunately, you have a number of options for
extending your coverage, including some that didn’t
exist when you bought insurance a couple of decades
ago. Term insurance rates have decreased
significantly over the past 20 years, and if you’re in
your fifties or early sixties and relatively healthy,
premiums for a new policy can still be affordable.
Some policies even provide “living benefits,” which
allow you to tap your death benefit early if you have a
chronic illness, or they can double as long-term-care
insurance. If you have health issues, you may be able
to convert your current coverage to a permanent policy
that remains in force for the rest of your life.
If your term life insurance policy is nearing the end of
its term, don’t wait until it expires to review your needs.
You have the most options while the policy is still in
Buy a new term policy
Term insurance prices have dropped over the past 20
years because of competition, the ease of comparing
rates online, and medical advances that have led to
longer life spans. You may be able to get a new policy
that locks in a rate for 10 years or more and doesn’t
cost much more than your current coverage. For
example, a healthy 57-year-old man could buy a 10-
year term policy that would provide $500,000 in
coverage for about $1,151 a year. Or he could buy a
20-year term policy for about $2,050 a year, says
Hilary and David Graf bought 20-year term policies
when they had their first child—and then they had five
more kids. When their policies were about to expire
five years ago, they were supporting most of their kids,
who ranged in age from 15 to 22.
As a personal finance teacher at a high school near
Richmond, Va., Hilary understood the importance of
life insurance, and the couple started shopping for new
policies. “We realized we were grossly underinsured,”
she says. The Grafs worked with AccuQuote and
found a Transamerica term policy with living benefits
that would let them access cash from the death benefit
early for certain medical conditions. Hilary bought a
$750,000 20-year policy for about $1,600 a year, and
David bought a similar policy for about $1,800 per
year. “You don’t think you’re going to need it, but if
something happens, you’re covered,” she says.
The decision to buy a policy with living benefits was
prescient. Hilary, now 55, developed debilitating Lyme
disease. She eventually left her job and went in search
of successful treatment. After providing medical
records to her insurance company, she received about
$50,000, which helps her pay for treatment in
California. The living benefits payout reduced her
death benefit by about $150,000, but having the cash
for health care was more important to her. “What a
blessing this was for us,” she says. “I wish I could go
back and talk to my students about this.”
Several insurance companies now offer chronic-illness
riders. The specifics vary. They may pay out only for
certain maladies—such as a heart attack or cancer—or
they may pay out for a broad range of conditions.
Some policies reduce the death benefit on a dollar-per-dollar
basis. Others, such as Graf’s, reduce the death
benefit on a case-by-case basis (hers was reduced by
a 3-to-1 ratio).
Buy a new permanent policy
If you need life insurance for an unknown amount of
time—you’re supporting a special-needs child, for
example, or you want to leave a legacy for your family
or a charity—you may want permanent insurance. If
you’re relatively healthy, you may get a better deal by
buying a new policy rather than converting your current
term coverage. There are several kinds of permanent
Guaranteed universal life doesn’t earn much cash value, but the premiums never
change. A healthy 57-year-old man could pay about
$7,000 per year for a $500,000 GUL policy, says David
Eisenberg, of Quantum Insurance Services in Los
Whole life has level premiums that tend to be at least
double the annual cost of GUL. For example, a 57-
year-old man could pay about $17,800 per year for a
whole life policy that starts out with a $500,000 death
benefit, then never pay any more premiums after age
70, says Eisenberg. The death benefit increases, and
the policy also builds cash value that you can use for
any reason. Premiums will be
lower—and the cash value at 70 much higher—if you
start at age 50 or earlier.
A whole life policy offers a lot of flexibility. “Some
people use one-third for retirement income, one-third
for a legacy for their children, and one-third as a legacy
for charity,” says Scott Sparks, a Northwestern Mutual
wealth management advisor and CEO of Sparks
Financial. The cash value grows based on the insurer’s
Many insurers now offer policies that combine life
insurance and long-term-care coverage. These policies
generally let you access a portion of your death benefit
early if you need long-term care. You can tap the
benefits if you require help with two out of six activities
of daily living (such as bathing, eating or toileting) or if
you have cognitive impairment—in other words, the
same benefit triggers as for stand-alone long-term-care
coverage. Unlike stand-alone policies, however, the
premiums generally can’t increase.
“The sweet spot to buy these policies is from age 45 to
65,” says Udell. And the policies can be particularly
attractive to single women, who often pay 50% more
than men for stand-alone long-term-care policies.
With Lincoln Financial’s MoneyGuard, you can add
long-term-care coverage that’s two or three times the
value of your death benefit. A 50-year-old man with a
couples discount would pay $10,500 per year until age
65 for a policy that provides a $250,000 death benefit
and up to $750,000 in long-term-care benefits over six
years (the first $250,000 is subtracted from the death
benefit). A 50-year-old woman would pay slightly less.
Some policies let you access 2% to 4% of your death
benefit every month for care for a modest increase in
premiums. The feature adds an extra 10% to the
premiums at John Hancock, for example, and about
half of new buyers choose that option, says James
Bowman, of John Hancock.
A strategy for younger buyers
The decisions you make when you buy life insurance
in your twenties or thirties can help you avoid
scrambling to find coverage before your term policy
You could buy a permanent life insurance policy and
never worry about the coverage expiring. But the
premiums are much higher than the premiums for term
insurance, and young families who start out with
permanent insurance frequently buy too little coverage
because that’s all they can afford.
“What we really need to focus on with younger families
is the death benefit amount,” says Tim Maurer, director
of adviser development for the BAM Alliance, a
network of independent financial advisers. A 30-year
term policy is also an option, but those premiums can
be pricey, too.
A more cost-effective way to extend the coverage is to
layer policies, says Maurer. Buy a 20-year term policy
for the bulk of your coverage. That allows you to get a
death benefit large enough to protect your family while
your kids are at home and you’re making mortgage
payments. “You want to have all of those years
covered, but you might not need that much coverage
for the whole time,” Mauer says. If you’d like coverage
that lasts longer, you could also get a 30-year term
with a smaller death benefit.
For example, a 35-year-old man could buy a $500,000,
20-year term policy for $250 per year and layer
$250,000 of 30-year coverage for an additional $260
per year, which would cover him until age 65, says
Udell. If you want some permanent coverage, too, you
could add $100,000 of guaranteed universal life (GUL),
which you can keep for your lifetime, for about $620
per year (whole life would cost about double that). A
35-year-old woman would pay about $215 per year for
a $500,000, 20-year term policy and could get a
$250,000, 30-year term policy for an additional $226
per year. She could add a $100,000 GUL policy for
about $515 per year.
The conversion option
If you have health issues, premiums for a new term
policy could be in the stratosphere. But most term
policies let you convert to permanent insurance, which
will remain in force for the rest of your life. You don’t
need a new medical exam because premiums are
based on your health when you bought your original
However, there’s a big catch: You have a limited
amount of time to take advantage of the conversion
option. Some term policies let you convert to
permanent coverage only within the first 10 years of
the term; most let you convert for at least 15 years into
Some insurers’ conversion options are better than
others. You may be able to convert to any of the
insurer’s permanent policies, or you may be limited to
one policy that may have high fees.
Tell your agent about any medical issues up front.
Before his clients apply for a new policy, John Ryan, of
Ryan Insurance Strategy Consultants in Greenwood
Village, Colo., interviews and prescreens them so he
can tell them the rate they’re going to get—or that
they’re uninsurable and have to convert.
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