What happens when a level term life insurance policy reaches the end of its guaranteed level premium period?
If your term life policy is nearing the end of its guarantee period, you may be wondering what happens next.
Can you extend a term life insurance policy? The answer is yes. When most term life policies reach the end of their level premium, they typically become annually renewable term insurance. What it means is that if you continue paying the premiums on time, it will remain in force and will continue to renew every year until its expiration.
You may be thinking why not just keep your current policy and let it renew every year after the guarantee period? Well, the renewal process results in one very important change to your policy. Your policy can renew, but your premiums will be based on your attained age, which also means your premiums are highly likely to increase – and not just once, but every year the policy is kept in force.
If you have a term life insurance policy that’s about to reach the end of its guaranteed level premium period, it’s important to understand your options along with some actions you may want to take to get the most out of your life insurance coverage.
Option 1: Convert all or a portion of your current term life policy to a permanent life policy
Most term policies have a conversion privilege, which allows you to convert all, or a portion of your coverage to Whole Life, and typically without undergoing additional underwriting or a medical exam. You’ll no longer need to worry about your premiums increasing every year because a permanent policy offers level premiums for as long as you live (as long as your premiums are paid on time), unlike a term policy, which only offers level premiums for a certain number of years.
- Your premiums will remain level for the rest of your life
- The policy will last the rest of your life (if your premiums are paid on time)
- You won’t need to undergo a medical exam
- Your policy builds guaranteed cash value
- A permanent policy may not be as affordable as a term policy
Option 2: Purchase a new term life policy
Another option you have is to qualify for another term life policy. With this option, you’ll once again have guaranteed level premiums for the length of the term. This is a viable choice if you have a specific need for coverage, for a specific amount of time. For example, helping to provide money to pay off a mortgage, provide for education expenses or income replacement.
- Many term policies are available in 10, 20 and 30 year increments
- A term policy typically is more affordable than a permanent policy
- If needed, you still have may have a conversion privilege
- Remember, it’s not designed to be permanent
- You may be required to undergo a medical exam to qualify
- Depending on your age, you may not qualify for the length of the term policy you want
- Term policies don’t build cash value
Option 3: Keep your current term life policy
You also have the option of keeping your term life policy even after the policy has reached the end of its term. However, as mentioned earlier, if you decide to go with this option, keep in mind that your policy will automatically convert to an annual renewable term life policy and your premiums will increase (because they’ll be based on your age at the time of renewal).
- Your current coverage will remain in force (if your premiums are paid on time)
- Your premiums will increase every year
- Your policy may have an expiration age, typically at age 95
Don’t forget to discuss these options with your State Farm agent before your guaranteed level term period expires. If you are not sure when that is, your agent can always help you find it.
Revisit your life insurance needs; they may have changed
It’s always a good idea to revisit your life insurance needs on a regular basis, as they can often change over time. As you think about what you want to do with your current term policy, here are some key factors to consider when weighing your options:
- Your current life stage. Often times our life insurance needs can be affected by what stage of life we’re in.
- Your spouse or significant other. Your partner may depend on your income to help meet monthly expenses. Having life insurance could help avoid putting them in a financial bind.
- Your children or grandchildren. Think about the legacy you want to leave. Perhaps you want to help the young ones in your life with education costs.
- Rent or mortgage payments. Life insurance can provide the financial protection that helps your loved ones stay in their home, even when they no longer have your income.