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Renewing your term life insurance policy may be possible, but there may be new associated conditions. Whether or not it is worth these changes will depend on your current life situation and how much it differs from when you took on the policy.
Can You Renew Term Life Insurance?
Seeing the end of your life insurance's term should be cause for celebration—you never had to cash it in! Your next move may be to renew or extend term life insurance, but first, it's important to understand how it works and whether or not renewing will actually benefit you.
Term life insurance covers you for a set period of time—perhaps 10 or 20 years. You pay premiums to maintain coverage and get a set death benefit.
Terms for renewability are part of many term life insurance policies. Often you can renew by extending your current policy year-by-year after the initial expiration date in exchange for taking on a higher premium.
You may want to renew your term life insurance policy if you still have dependents, including your spouse; have mortgage payments you want covered; or want to provide cash to loved ones upon your death.
What to Do if Your Term Life Policy Is Expiring
If you opt to renew or extend your policy, you may be charged a higher rate. That's because premiums tend to go up with age. Renewal terms will likely be a year at a time, with each renewal coming with the potential for more premium increases.
Purchasing a completely new term life policy is also an option. But complications may arise in getting a new policy because of the time that has passed since purchasing your original policy.
As term life policies generally last for defined periods of 10 to 30 years, you are likely in a different life stage at the end of a life insurance term than you were at the time the policy was originally purchased. And as you get older, life insurance premiums typically rise: For example, premiums can jump more than 35% in the decade between ages 30 and 40. You may also need a medical exam to qualify for some new life insurance policies.
There are no-exam insurance options that could work for those unlikely to pass a medical exam, though they do typically come with higher premiums. Budget accordingly when you sign up for these types of insurance policies.
You may also be able to switch to permanent life insurance. If your current term life policy has a rider specifying the possibility of conversion, you can do so directly with the insurance company. Conversion may only be available at certain points in your policy, however, so be sure to nail down the time frame.
It is also possible to buy a new permanent policy like whole or universal life insurance if you would like a lifelong policy. The premiums on whole life insurance are higher than term life—up to 10 times higher—but they do build a cash value, which is attractive for some.
How Much Life Insurance Do You Need?
By the time your term life insurance policy expires, your needs may have changed. Perhaps your kids have left the house or you've paid off your mortgage and no longer have to worry about your survivors coming up with mortgage payments. Term life insurance may no longer be needed and you can opt to do nothing when your policy expires.
On the flip side, there are other expenses that arise over time such as paying for a parent's care or covering college tuition for your kids. In these cases, maintaining life insurance—and perhaps a bigger policy—may be necessary to replace your income if you were to pass away. You will need to calculate the total of your expenses and purchase a policy with at least equal coverage.
Consider these expenses and your survivors' ability to handle on their own while you decide how much life insurance you need:
- Mortgage payment
- Child care costs
- College tuition
- Spouse's medical bills
- Parents' long-term care
- Payments for car loans or other debt
- Funeral costs
While you calculate needs and shop for life insurance that would cover your family in the face of losing your income, be sure to keep your credit in good shape. That's because some insurance companies may use a credit-based insurance score to help set your rates. You may be able to save more on life insurance by maintaining your credit health. Getting your free credit report and score from Experian is a good first step to see where you stand.