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Your life insurance policy is about to expire… Now what? When you purchase a term life insurance policy, you’re gaining coverage for a predetermined amount of time (term). Once that term is over, your life insurance policy expires or future premiums increase dramatically year after year making the policy unaffordable.
This type of policy makes sense when you have dependents that will need financial help without you. Eventually, the dependents grow up and gain financial independence. For this reason, the low premiums of a term life insurance policy are appealing.
However, you’ve spent years paying premiums and now you’re wondering if you can get anything out of it? Or maybe, your situation has changed and you need additional life insurance coverage.
When a term life insurance policy expires, you’ll likely receive a notice that informs you of this change and that’s it. You’ll no longer have coverage and you no longer have a monthly payment. This is an abrupt change you might not be ready for. Or you might be leaving cash on the table.
If you had a return of premium policy, you will receive a check for the amount of money you paid into the policy throughout the term. You receive this money tax-free. These policies are more expensive than traditional term life insurance. Also, the return of premium can sometimes be added as a rider to a term life insurance policy.
Some policies include a term conversion rider. In this case you can easily convert your term life insurance policy into a permanent life insurance policy. You would want to do this 6 months to a year before it expires. Keep in mind that this option is not available forever and the option may end at a certain age such as 65, 70 or 75. Sometimes the policy will include an exact date for the end of the conversion option.
Of course, if you want to purchase a new policy, you will need a medical exam. Poor health can result in expensive premiums on a new policy.
With a term conversion, you can switch the policy to a permanent one. These types of policies have higher premiums but give the insured the option to continue coverage at a cost that is level instead of increasing each year. The policyholder’s age will be considered when determining the new premium, but not their health status.
If you decide to purchase a new policy, you’ll choose between a term or a permanent policy. For a young person in good health, a term life insurance policy is the least expensive option. The new premium will depend on the new term length as well as the death benefit. A smaller death benefit will lower the premiums.
You may have fewer dependents or a smaller length of time before those dependents are financially independent. For this reason, you might want different coverage when your initial life insurance policy expires.
With any new policy, a medical exam will likely be required and age will certainly increase premiums.
A permanent policy is also an option although it will be significantly higher than any term policy. With a permanent policy, your coverage will last till you die. Permanent policies also have cash value. Part of the monthly premiums you pay goes into an account that can be borrowed from or withdrawn completely. Permanent policies are especially good when a dependent may never be financially independent.
If you can convert your term policy to a permanent policy before your life insurance policy expires, you could consider a life settlement. A life settlement is when you sell your life insurance policy to a third party. The buyer takes over the monthly premiums and they receive the death benefit when you die. You receive cash for the policy and no longer have coverage or monthly premiums.
Sometimes the buyer will convert the policy and you can sell it as a term policy before your life insurance policy expires.
Your payout you receive will be more than the cash surrender value and less than the death benefit. The cash surrender value is the money your insurance company will give you to give up your policy. That is if you decide to cancel the policy for the cash available.
If you use a broker with a life settlement company, they’ll prepare your policy to be bid on. They will collect bids from buyers and present you with the highest offer.
A life settlement is a good option if you don’t have dependents that need financial help anymore. You may need the cash for retirement or medical care. Check if your policy is eligible for a life settlement with a life settlement calculator. Then reach out for a free consultation. You don’t have to be sure you want a life settlement before talking with us. We will help you determine the best path forward.
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