4 Things to Do Before Your Term Life Policy Rides Off Into the Sunset

Term life policies are a very affordable and easy way to provide security for your family, business, or any other future financial obligation. Even a term policy of 30 years can be very affordable for young people just starting out.

However, even that 30-year policy will eventually run its course. The reason that term policies are so inexpensive is that the insurance carriers have made a bet they will not have to pay out the proceeds. Once the term ends, the carrier will not simply terminate the policy. One of two things will happen. Either the premium will increase substantially, usually by many multiples of what was previously paid, or the death benefit will be severely reduced.

The termination comes after fairly long period of paying level premiums (either 20 or 30 years), so the sudden change can catch people off guard. What should you do?

1. Make Sure You Know When Your Level Term Ends

Make sure you are aware when that last level term premium will be paid. If your policy is on an auto-draft or maybe it is a company key man policy, you need to make sure you have removed the auto draft or informed you payables department to NOT pay that increased premium after the level term ends.

2. Talk to Your Agent Before the Term Ends

Talk to your agent about options one year BEFORE the end of the term policy. This will give you plenty of time to consider options.

3. Consider Whether You Still Need the Insurance

What are your options? Well, do you still need the insurance? Have circumstances changed since you put the policy in place? Does your family or business still need that death benefit?

If so, the simplest answer may be buying a new term policy. Prepare yourself. It will be more expensive. Life insurance premiums start increasing as you age and the premiums you paid as an underwritten 20 year old are going to be a whole lot more than what you will qualify for in your 50s.

4. What About "Converting" the Policy to a Permanent Policy?

What about "converting" the policy to a permanent policy? What is a permanent policy? That is a policy that has no term. It is expected to run for your lifetime or at least well into an advanced age.

Some policies will allow for a conversion to a permanent policy. However, this is usually going to be very expensive, even more expensive than a newly written permanent policy.

Why would you convert? Well, perhaps you can no longer qualify for life insurance due to health considerations. This may still be an option for you.

However, there is usually a timeclock on your right to convert. It may end before the end of your term policy. So, reviewing those options with your agent is always a great idea.