“All good things must come to an end”Geoffrey Chaucer is credited with the original use of this idiom. It first appears in the English author’s poem, Troilus and Criseyde.
Congratulations, you have outlived your term life insurance policy – BUT, NOW WHAT?
Did you know that 99% of all term life policies expire without a claim?
That may seem like a captain obvious moment of the day, but there are some important implications behind that statement.
First, insurance companies know this, the entire industry operates on this premise, after all they are in the business to earn a profit.
Second, back in the 1970’s, Primerica created the strategy of “buy term and invest the rest.” In the 2000’s, Dave Ramsey and Suze Orman have been the messenger of this mantra. Due to this philosophy and strategy, term life insurance is MUCH more prevalent now than it was in the 1970’s.
Third, when someone does outlive their policy the unfortunate reality is that the many people did not have the discipline or money to “invest the rest” and they are stuck in a position of two unfortunate realities;
One of the most frequent types of inquiries we receive is from people above the age of 50 that have either; 1) an EXPIRED term policy or 2) an EXPIRING term policy.
So, let’s take a closer look at recommendations for each of these cases.
The first thing that needs to be asked is; WHEN DID THE POLICY EXPIRE? If you are withing a 30 day window of expiration, you have options. If the policy expired greater than 30 days ago, you are very likely (almost certainly) without options.
The obvious solution here is do not wait more than 30 days after your policy expired – simply put – do not let the situation escalate to that point.
If you have an EXPIRING term policy or a term policy that has expired within the past 30 days, let’s take a look at what can/will happen and some of your options.
Many (most) insurance companies and carriers will automatically renew your policy into an annually renewable term policy.
They will just send you a new bill that will amount to a MUCH GREATER PREMIUM than you were paying for your original term policy. Each carrier, though, is different how they manage this conversion.
For an expiring 20 year term policy, if you do “nothing” and just continue to pay the premium (bill) for the new annually renewable term, you can expect to pay at least 3-4 X the amount of your original term policy.
THE MOST IMPORTANT THING TO UNDERSTAND IS THAT THIS NEW POLICY, AND INCREASED PREMIUM, WILL INCREASE EVERY SINGLE YEAR IF YOU DO NOTHING.
While 3-4x increase in your premium might be tolerable in the short term, please do recognize and understand that the premiums WILL go up again the following year.
Most term life insurance policies do not technically expire until the insured reaches age 85, 90 or 95. As mentioned above, many (most) insurance companies will simply automatically renew your policy as an ART (annually renewable term).
Another option is to apply for a new term policy; 5 Year, 10 Year, 20 Year, etc. Please do understand that the premiums will be significantly higher for this new term policy than the original term policy, after all you are older and there may be health issues now that you did not have during the 1st policy.
Pros of New Policy – This option may be worthwhile if you find you need the coverage for a short period, say for example 5-10 more years. Perhaps you had another child shortly after your original policy and need the protection, you recently purchased a new house or you have not attained your retirement goals. A new extended term policy vs. a new whole life policy is MUCH less expensive and a new extended term policy vs. an ART (annually renewable term) will lock you in over those 5-20 years at a significantly lower cost over time.
Cons of New Policy – Every year older you get the insurance will get more expensive and you will risk having to re-apply for insurance with health conditions that you previously did not have. You could easily end up in the same situation 5-20 years later and have outlived your new policy. Also, the longer the term policy (i.e. 20 years), the older you will be and the more expensive the premiums will be over the life of the policy.
In the current life insurance landscape within the past 10 years, nearly all term life insurance policies issued today include a conversion option, or some kind of convertibility rider. If your policy was issued more than ten years ago, be sure to check if it includes this option.
BE VERY CAREFUL AND READ THE FINE PRINT IN YOUR POLICY THOUGH! Below are some of the gotchas that you may not be aware of.
This option allows you to convert your term life policy to a permanent life policy, typically a Whole Life, Universal Life (UL) or Indexed Universal Life policy.
Conversions guidelines vary by the life insurance company.
One of the most important things to remember about conversion is the LONGER YOU WAIT, THE MORE EXPENSIVE the permanent life policy would be. It’s best to start looking at policies and costs at least a year in advance. This will help you keep your options open at the policy end draws near.
Pros of Converting to Permanent Life of– Perhaps the biggest benefit of a term-to-perm conversion is that you do not have to provide evidence of insurability to convert to a permanent policy, provided the coverage amount remains the same or less. No exam, no questions, just a simple conversion. This is INVALUABLE if you have a health condition now that you did not have when your original term policy was issued. There will also be a cash accumulation component to your permanent life policy that was not available with the term policy.
Cons of Converting to Permanent Life – The biggest disadvantage is that the premiums and cost will be much more expensive.
In a perfect world, we would have; 1) followed the “Buy Term and Invest the Rest” strategy, 2) Outlived our term policy, 3) Invested and save enough to NOT “need” any more life insurance.
Note: Most of us do not live in a perfect world, but if you were fortunate and disciplined enough for this to be the case – CONGRATULATIONS!
The “do nothing” strategy is perfectly fine if you have the resources (i.e. money, retirement benefits, income stream, etc.) for your family and legacy to live on if something happens to you.
In these cases, you may wish to look into a senior life final expense life insurance policy for the peace-of-mind of a small face value whole life policy to cover your final expenses.
PLEASE BE KEENLY AWARE that it’s likely, perhaps a certainty, that an agent or representative WILL NOT CONTACT YOU. There are exceptions to this, as an example if you have an on-going relationship with your life agent or if life agent is also your financial planner, then they will very likely let you know your options.
This, for me, is the most painful part of dealing with these cases. 99.9% of the time when I am confronted with an inquiry by a person with an expiring term, IT’S TOO LATE – THE POLICY EXPIRED, or the person has received ZERO communication from the carrier or agent. In these cases, I feel the brunt of the frustration when people are not aware or their options or their policy expired without them knowing.
In the past year, we have received an increasing number of inquiries from people with expiring Genworth term life policies.
The first 3-4 times someone contacted us with an expiring Genworth policy, we did not think much of it – BUT – it continues to happen. So I took a deeper dive into Genworth Life and learned WHY!
I am following up this article with another one explaining WHY we get many inquiries about expiring Genworth Term Life policies.