Term life insurance is a popular type of life insurance that provides coverage for a specific period of time, typically ranging from one to thirty years. During this period, if the policyholder passes away, the insurance company pays a death benefit to the beneficiaries named in the policy. However, what happens if the term ends and the policyholder is still alive? Can the policy be extended or renewed?
Luckily, if you’re looking to continue your term life policy there are a variety of options available to you. Most of the options fall under three categories:
- Extended Life Insurance
- Convertible Life Insurance
- Purchasing a New Life insurance Policy
Read on to learn what policies are available and how to determine which choice might be right for you.
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Extending Your Term Life Insurance
Some term life policies carry a guaranteed renewability clause in their contracts. This clause allows policyholders to extend their coverage until age 95. Some policies allow extensions without requiring policyholders to complete another health exam or questionnaire. However, if the policyholder extends the coverage for their term policy, their premium will likely increase.
What Term Policies Can You Extend?
- Level Term: Level Term life insurance offers a fixed premium and a death benefit for the duration of the policy. This means that the premiums remain the same throughout the policy term, and the death benefit amount does not change.
- Yearly Renewable Term: Yearly Renewable Term (YRT) life insurance offers coverage for one year at a time. With a YRT policy, the death benefit and premium are fixed for the first year of coverage. At the end of the first year, the policy is renewed for an additional year, and the premium is adjusted based on the policyholder’s current age and changes in health or lifestyle.
- Decreasing Term: A decreasing term life insurance policy has a death benefit that decreases over time at a fixed rate throughout the term of the policy. In contrast to other extendable term life policies, the premium payments, however, typically remain the same throughout the term of the policy.
The Pros and Cons of Extending Your Life Insurance Policy
Pros of extending a term life policy include:
- No Medical Exam Required: In most cases, extending a term life policy does not require a new medical exam or underwriting, which can make the process simpler and faster.
- Coverage Continuity: Extending a term life policy allows you to continue your coverage beyond the original term, providing you with peace of mind and protection for your loved ones.
- More Affordable Premiums Than Other Alternatives: Extending a term life policy can be a cost-effective way to maintain coverage, as the premiums may be lower than purchasing a new policy.
Cons of extending a term life policy include:
- Higher Premiums After Extension: Although extending a term life policy can be more affordable than purchasing a new policy, the premiums for the extended coverage may be higher than what you paid for the initial term coverage.
- No Cash Value: Term life insurance policies do not accumulate cash value, which means that you will not have any money to withdraw or borrow against if you extend your policy.
Converting Your Term Life Policy
Convertible term life insurance is a type of term life insurance policy that allows the policyholder to convert their term policy into a whole life insurance policy at the end of the term. This gives the policyholder the flexibility to change their coverage to better suit their changing needs and circumstances without the need to undergo medical underwriting.
Convertible term life insurance differs from extendable term life because it becomes a different type of policy following conversion
What Happens After I Convert My Policy?
If you have a convertible term policy, the term ends, and you opt to convert the policy, it will become a whole-life policy. However, the type of whole life policy it at the discretion of you and your insurer. The most common options are:
- Traditional whole life insurance: This type of policy provides permanent coverage and builds cash value over time. The premiums remain level for the life of the policy, and the death benefit is guaranteed as long as the premiums are paid.
- Universal life insurance: A universal life insurance policy also provides permanent coverage and also builds cash value over time. However, universal life insurance offers more flexibility than traditional whole life insurance, allowing policyholders to adjust their premiums and death benefit as their needs and circumstances change.
- Variable life insurance: A variable life insurance policy provides permanent coverage and allows the policyholder to invest the cash value of the policy in various investment options, such as stocks and bonds. The death benefit and cash value can fluctuate based on the performance of the investments.
The Pros and Cons of Converting Your Life Insurance Policy
The pros of a convertible term life insurance policy include:
- Guaranteed Insurability: With a convertible term life insurance policy, you have the option to convert your policy to a permanent life insurance policy, regardless of changes to your health or age, as long as the conversion is done within the time frame specified in the policy.
- No Medical Exam Required: Like extending your life term policy, convertible term coverage also does not require an individual to go through medical underwriting.
- Flexibility: Convertible term life insurance policies provide you with the flexibility to adjust your coverage as your needs and financial situation change, allowing you to choose from a variety of permanent life insurance options.
The cons of a convertible term life insurance policy include:
- Higher Premiums: Like extending term coverage, convertible term policies often yield higher premiums, with those differences more pronounced after conversion.
- Limited Coverage: Convertible term life insurance policies may have restrictions or limitations on the types of permanent life insurance policies that you can convert to. Make sure to have an understanding of what type of whole life policy you can convert to before paying into a convertible term policy.
Purchasing a New Term Policy
For those who cannot extend or convert their term policy, there is a third option: purchase a new, different term policy. In this situation, you would essentially start from scratch and will need to research, apply to, and qualify for a policy without any carryover from a previous policy.
Because it’s unlikely you will be healthier now than you were in the past, the premiums will likely be more expensive. However, the policyholder can adjust their death benefit or policy term length to reduce costs. Policyholders considering shopping for a new term policy should talk with their agents and evaluate their assets to decide what they should do next.
The Pros and Cons of Purchasing a New Term Policy
Pros of purchasing a new term life insurance policy:
- Competitive Premiums: Shopping around for a new term life insurance policy can allow you to find competitive premiums that may be lower than the premiums for extending your current policy or converting to a permanent life insurance policy.
- Customizable Coverage: Purchasing a new term life insurance policy allows you to customize your coverage to fit your current needs, rather than being restricted by the coverage options offered by a policy you purchased years or decades ago.
- Higher Coverage Amounts: Purchasing a new term life insurance policy may allow you to obtain a higher coverage amount than what is available in your current policy or that you could access by extending or converting your current term policy.
Cons of purchasing a new term life insurance policy:
- Medical Underwriting: When purchasing a new term life insurance policy, you will need to undergo medical underwriting, which can be time-consuming and may result in higher premiums if you have any health issues.
- No Cash Value: Similar to extending a term policy, you cannot accumulate cash value with a new term policy.