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By Paul Reynolds
July 12, 2021
Senior Man looking over life insurance papers with the help of his son.
Money; Getty Images

Term life insurance is great while it lasts, providing relatively simple and inexpensive coverage for the time you need it. But if the policy term ends and you still need protection, you'll have to look carefully to find the most cost-effective options for replacement.

In contrast to permanent insurance (such as whole life and universal policies) that never expires, term insurance covers you for a specified term of between 10 and 30 years. In an ideal world, the term length and the time you need coverage line up neatly. But several factors can drive that timing out of sync.

For those who buy policies early to protect their young family, the term could run out in middle age, when you're still carrying middle-aged obligations. And a tight budget could prompt you to get a shorter term than you really need, since policies that run for longer have higher monthly premiums.

Whatever your reasons for needing insurance longer than you anticipated, here’s a step-by-step rundown of what to do if your insurance policy term is over and you’re weighing continued coverage.

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How much continuing life-insurance coverage should you buy?

Because the same death benefit is almost sure to cost you more when your current insurance expires, buy only as much continuing coverage as you really need. Any of the options allow you to insure for less than the death benefit of the original policy.

You can figure out your required amount through answering questions such as those posed by the Insurance Information Institute. The industry group recommends a three-step process to determining your life insurance needs.

First, establish what financial resources will be available to survivors after your death. The Institute advises totaling your expected support from three sources: Social Security and other retirement-related survivor benefits; group life insurance (received as a job perk); and other assets and resources.

Consider not only how much these sources will yield, but also when they will pay out. For example, Social Security survivor benefits are payable immediately to a surviving spouse with dependent children, but are delayed until after age 60 if there are no children.

Next, calculate your survivors’ financial needs after your death, the Insurance Information Institute suggests. Again, there are three categories to consider: final expenses; debts; and income needs.

Finally, subtract the first total (your survivors’ financial resources) from the second, representing their financial needs. This calculation should be more reliable to determine how large a policy to buy than some other formulas, such as simply buying a multiple of annual income. That can especially be the case when you’re older, and retirement complicates predictions of your annual income.

Option #1: Extend the policy, at least for a time

The simplest — but not necessarily cheapest — way to continue your insurance is to extend the term coverage you had. That’s an option on many, even most, term life policies. However, an extension is not considered a renewal of the coverage, and so lacks some advantages of getting a new term policy.

The main advantage here is skipping the need to medically re-qualify for coverage, provided you aren't seeking to increase the death benefit. That makes extending the policy an especially appealing option if you’ve developed serious health issues that could preclude getting a new policy elsewhere.

But you’ll have to take or leave the new premium the insurer offers, without the benefit of shopping around for the best rate available from all companies. And the rate is sure to be higher than you’ve been paying, probably dramatically so.

For example, a 30-year-old seeking to extend a 10-year, $500,000 policy on expiry could expect the premium to rise from, say, $20 to anywhere from $40 to $75 or so, according to Scottsdale, Az. life insurance agent Chris Huntley.

The hike in premiums can be higher still if you extend coverage when you’re older. For example, Guardian Insurance reports that a 50-year-old male who extends a 20-year term policy bought when he was 30 years old would see the premium jump more than tenfold, from $20 to nearly $250 a month.

And the figures cited by both Huntley and Guardian are only for the first year you extend. In contrast to the level premium you pay every month during the term of a policy, premiums during extensions are likely to rise every year, in step with your age — and the statistically greater chance that you’ll die in any given year.

Still, despite the sticker shock of extending your term policy, it’s a leading option for those who are not able to get another policy because of health issues, Huntley says, including those facing a bad prognosis from a serious illness.

It’s also worth considering, he says, as a “stopgap measure if you’re among the many people who wait until the last minute” to shop around for other options when their term insurance ends. “It allows you to have coverage in place while you are getting approved for another policy.”

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Option #2: Convert the policy to permanent insurance

Some term policies supplement or replace the option to renew with one to convert the policy into whole life insurance or another form of permanent life coverage.

This option allows you to turn your term policy into one that not only delivers a benefit upon your death but also accumulates a cash value as well — providing an asset you can use as collateral for a loan or use to pay your premiums. And as with renewal, conversion allows you to skip the qualification process of getting a new policy; instead, you retain the (probably better) health rating you received when you first acquired the coverage.

Conversion also provides cost stability. Unlike with renewal, premiums after converting your term coverage will be steady for the lifetime of the permanent policy. And where renewing term insurance requires waiting until the term expires, you can convert a policy earlier than that date. Indeed, depending on the policy, you may need to do so within the first five,10 or 20 years of taking out the coverage, as examples.

But conversion otherwise shares most of the disadvantages of renewal. Your policy options may be limited, with not even all permanent policies offered by the insurer available to you, let alone cheaper policies offered by other companies. And your premiums will go up: Prepare to pay between three and five times as for your old term policy, according to Barb Pietrangelo, a financial planner and insurance expert at Prudential.

Keep in mind that premiums will also rise if you extend a term policy rather than converting it. If both options are available to you, compare the hikes for each while also considering how each move meets your other needs.

If you're looking for tax-sheltered investments, your preference might lean to conversion because you can add extra funds to a permanent policy and have the interest on those investments shielded from tax, as with a 401(k) or traditional IRA.

Option #3: Buy a new term policy

If you still need coverage after your term insurance expires, the decision on whether to renew or convert your policy may boil down to two key questions: How old are you? And how’s your health? If the first answer is a relatively low number (say, under 50) and the second one is positive — even mildly so — you should shop around for a new policy, say experts.

“I would say in most cases, if you’re young enough and healthy enough, it’s going to be cheaper to just to go get another 10- or 20-year term policy,” rather than convert or renew your existing coverage, says Huntley.

Online broker Quotacy echoes that advice: “If you’re still even a little bit healthy, we recommend you look into buying a new term life insurance policy if you still want more coverage. This is the most affordable route by far.”

A caveat here, though: Even if your health is as robust as the day you bought your first policy, your new coverage will be more costly. No matter the policyholder, the cost of life insurance rises with age. But getting a new term policy at least allows you to pay premiums that are level for every year, as opposed to facing the likely annual hikes if you extend an existing term policy.

Pursuing options other than renewal or conversion doesn’t have to involve submitting to a medical exam, although you may wish to do so to get the broadest range of premium quotes. If your health is good, you can increasingly buy life insurance by allowing companies or an independent broker to get access to your online medical records.

Neither is a term insurance policy a binding contract. You’re free to cancel at any time, should your needs or finances change. Of course, you'll then end your protection, too, and essentially forfeit the premiums you've paid to date.

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