The fear of uncertainty is something we all struggle to come to terms with, but that’s not to say we shouldn’t trust certain things to happen.
When the unexpected happens, it’s nice to trust that everything you’ve done will be enough to secure the wellbeing of your loved ones.
Term life insurance can provide some reliability and flexibility when you need it most. Whether or not you’re prepared to face all of life’s various hiccups, hurdles, or heartbreaks, a life insurance policy can add security and peace of mind. However, deciding what to do when a life insurance policy lapses can still be a complex decision due to changing needs throughout your life.
What is a term life insurance policy?
Term life insurance policies provide coverage for a person over a fixed period of time. A level term policy will allow choose a single premium that remains consistent throughout your agreement with the provider, its payout to beneficiaries is income-tax free, and some providers even allow you to elect into the plan without a medical examination required.
Hopefully when your term life policy ends, the primary need for that coverage has also matured: your kids are independent and done with college, your business is on solid ground, your mortgage is paid off. However, life continues to throw curveballs, which may mean that you still want or need life insurance coverage even after your policy expires.
What are your options?
When your term policy is due to expire, you may have several options, depending on what is offered by your insurer. These include:
Extending your policy annually
Some insurers will allow you to continue to renew your policy on a yearly basis, as long as you have guaranteed renewability. This may let you avoid a new round of medical underwriting, but it’s likely that your premiums will go up with each renewal.
Convert to a permanent policy
If you have the option to convert your term policy to a permanent life insurance policy, which means either whole or universal life insurance, this may be a solid option. Permanent life insurance offers a guaranteed death benefit that lasts as long as the policy is in place, and converting your policy can help avoid additional underwriting.
However, how and when term policies can be converted to permanent policies varies substantially between insurers, so be aware of when you need to begin this process and what it may involve in your specific circumstance.
Buy a new life insurance policy
Buying a new term or permanent life insurance policy may be the right choice in certain circumstances. Although you’ll have to prove your insurability again, if your coverage needs have changed substantially, you can choose a more appropriate benefit for your current needs.
This option can be particularly attractive if your coverage needs have gone down substantially and your health is still good. It is likely that you’re not quite as insurable as you were at the start of your previous policy, but locking in a new level premium rate is often a better option than dealing with the annual uncertainty of yearly renewals.