What to do when your term life insurance is ending
NEW YORK, Jan 31 (Reuters) – Joe Natiello faces a “nice problem to have”.
Nearly 20 years ago, the 64-year-old resident of Westfield, New Jersey, took out term life insurance to protect his family in the event of the worst.
However, that policy is due to expire next year, and at his age, Natiello’s insurance premiums would increase if he decided to extend coverage.
Obviously, being gone is better than the alternative. But for Natiello and every other policyholder in his situation, the question arises: “Do I still need this?”
It’s a tough decision that can raise some pretty big existential questions. For example: How much time do I have left? How is my health situation? Is it still important to secure my family’s financial future?
“It’s actually a good time to consider your life insurance needs and determine if they’re adequate or too little or too much,” says Scott Bishop, a Houston-based financial planner.
Remember that there are different types of life insurance on the market and those with “permanent” versions don’t face this conundrum. These types offer different benefits depending on the policy – such as For example, they have no expiry date, contain options for investment growth, and have a cash value component that you can take or borrow money against – but are far more expensive.
Term policies appeal to those who prefer a simpler product with lower monthly premiums. According to quotes on aggregator site Term4Sale, the typical monthly cost for a 30-year-old man in good health to purchase a 20-year, $500,000 policy — the most common length and amount — is between $19 and $28 per month. com.
So, as your “deadline” approaches, here are some options to consider:
LET IT DECREASE
A major reason for life insurance is to protect your family early in your career when you don’t have much to your name. But with enough wealth, the equation changes.
“Ideally, they bought the term policy when they were young and they might have young kids and a big mortgage,” says Kayla Johnson, a financial planner in Wilmington, North Carolina. “Now they’re about to retire, the kids are out of the house and the mortgage is paid off. At this point life insurance is hopefully a waste of money.”
Now that Natiello’s two children are out of college and he has general coverage, the former Wall Street trader decided to let his liability insurance expire.
EXPAND YOUR CURRENT POLICY
You can choose to keep the meter running on your existing policy, which is usually renewed annually. The advantage of this is that you do not have to go through any further health tests in order to be approved.
The downside: since your insurer is assuming more risk, premiums will increase at previous levels.
“They can renew their current policy, but the cost will most likely be significantly higher [than purchasing a new policy] because the person isn’t going through underwriting,” says Elaine Tumicki, director of insurance product research at industry association LIMRA.
BUY A NEW TERM POLICY
If your first term policy is expiring and you are still in good health, look for a new term policy.
Just be ready for another underwriting process and don’t expect the same rewards. For a 50-year-old man in good health who buys a 20-year policy with $500,000 of coverage, you’re now getting offers for monthly premiums ranging from $70 to $100 per month, according to Term4Sale.com. (One way to keep those premiums in check is to get coverage for a smaller amount than before.)
Also keep in mind that it can be difficult to even get a new policy if you have health problems.
CONVERT TO OTHER COVER
Another option is to convert your term into permanent coverage, which some insurers will allow depending on the fine print of your current policy.
“A term conversion privilege often allows the policyholder to convert to a permanent policy, such as universal or whole life insurance, without having to take another medical exam,” said Amanda Kuhl, senior vice president and head of life products at insurer New York Life.
Even better if the converted policy includes a long-term care component designed to support future costs related to disability or chronic illness or nursing homes.
“Can you convert the term life policy to a permanent policy?” asks Michelle Gessner, a Houston-based financial planner. “If you, as a rider, can get long-term care benefits through another life insurance policy, that might be the way to go.”
Reporting by Chris Taylor; Edited by Lauren Young and Aurora Ellis Follow us @ReutersMoney
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