Are you in the market for term life insurance? Or do you currently own term life insurance but are wondering whether a permanent policy may be a better strategy?
Term life insurance is a popular and effective way to manage one of life’s most dangerous risks. If you have a spouse, children or other family members who are dependent on your support, life insurance can help them manage their affairs should you pass away. They can use the life insurance death benefit to cover living expenses, pay down debt or address other challenges.
There are many different kinds of life insurance, but most types fall into one of two categories: term or permanent. A permanent policy is guaranteed for life as long as you pay the premium. A term policy provides coverage for a limited period, such as 10 or 20 years.
Term policies are popular because they often cost less than permanent alternatives and because the term policy can be used to cover a specific need. For example, if you have children, you may want a 20-year term policy that provides coverage while your children live in your home. Once the kids are grown, you may not need the coverage anymore.
While term insurance is a fairly straightforward tool, policies can sometimes come with unique variations and wrinkles. Below are three questions you may want to research about your current term policy or any policy you’re thinking about purchasing. The answers to these questions could make a big difference in your decision about whether the policy is right for you.
What will the premium be if you renew for a new term?
Technically, term policies are in place for a limited period of time. However, many policies offer an opportunity to extend the coverage after the initial period ends. For example, if you have a 10-year term policy, the insurance company may allow you to extend the coverage at the end of the initial 10-year term.
Often this renewal doesn’t require you to undergo new underwriting, which could be helpful if you develop health issues. If you do extend the coverage, however, your premium will likely increase.
You may want to explore your renewal premium well in advance of your term’s expiration. It may turn out that you’d be better off buying a new policy than renewing your current one. If you know your renewal premium in advance, you can research alternatives before your term expires.
Can you convert the policy into permanent insurance?
Extending your coverage is one option if you still need protection after your term ends. However, your life insurance policy may offer another option. It’s called conversion, which is the option to convert your term policy into a permanent one.
When you convert your term policy, it immediately becomes a permanent policy, such as whole life or universal life. Your premiums are adjusted to reflect the new permanent coverage. However, a portion of those premiums will go to the policy’s cash value account, which could increase over time.
Conversion can be appealing because it usually doesn’t require new underwriting. Your new premiums will be based on your current age. However, any new health issues won’t be factored into the premium calculation. You’re rated at the same health classification as when you bought the original term policy. This could be an attractive option if you may need permanent insurance in the future.
Does the policy have an accelerated death benefit option?
Many life insurance companies now offer a feature called an accelerated death benefit. This is an option to take your death benefit before you pass away if you are diagnosed with a terminal illness. It allows you to pay for medical bills, hospice care and other financial issues that may arise in the final stages of your life.
Accelerated death benefits are usually offered on permanent policies, but there are some term policies that also have the feature. It may be worth considering as an added level of protection for you and your family.
Ready to develop a protection strategy for you and your loved ones? Let’s talk about it. Contact us at Advantage Retirement Services today. We can help you analyze your needs and create a plan. Let’s connect soon and start the conversation.
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