What to Do at the End of Your Life Insurance Term

We talk a lot about how to get started with a life insurance policy. It’s important to make sure you understand what type of insurance you might need, how much coverage may be right for you and other details. But preparedness matters just as much on the other side of a policy, too. After all, a defining part of term life insurance is that it ends after the term length you choose. Many people in their 20s and 30s buying a term life policy expect to outlive it, which means they need a plan to help protect their families after coverage ends.

If your life insurance policy has helped give you some peace of mind, that positive feeling doesn’t have to end when your policy does. Take these steps to set yourself up for a smooth transition out of your insurance policy when the time comes.

Stay on Track With Financial Priorities

Years before your policy comes to an end, you can prepare by taking steps to help meet your family’s goals. Some areas you may want to give special attention to include:

• Retirement fund: Are you on track as a household to afford the lifestyle you want in retirement?

• Paying off your mortgage: How many years do you have left? Would your partner be able to keep up with payments without you?

• Avoiding or paying off debt: Credit card debt, car payments and even some student loans are important financial commitments to consider.

• Saving for college: You might have plans to help contribute toward nieces, nephews or grandchildren in addition to planning for your own children’s education.

• Contributing to family milestones: Special travel experiences or weddings might be meaningful plans in your family.

• Other financial goals that speak to you: If you run your own business with a partner or want to set aside money for a favorite charity cause, consider how much you might need in additional savings.

The more financial milestones you reach, and the more secure you feel about your savings, the more likely that you’ll be ready when your current life insurance policy ends.

Do You Need More Coverage?

As you near the final years of your life insurance policy, take some time to go through your finances carefully. Term life insurance is a popular choice with many people who want coverage during their most intensive income-earning and family-raising years. The question is whether you’re ready to go without coverage at the end of the timeframe you had in mind.

Signs you may be independent enough when your coverage ends

Term life insurance is commonly used to help provide a benefit for the people who depend on you financially if you pass away. If your kids are living independently, your major debts (e.g., house payments) are paid off and you feel comfortable living on retirement savings, you might consider your current feelings about what life insurance coverage feels right for you. Some people prefer to extend life insurance coverage as long as possible, while other people prefer to transition into “self-insuring” with their own resources and stop carrying a life insurance policy.

Other signs that you might want to consider self-insuring:

• You have a plan in case you or your partner need long-term medical care

• You’ve looked into options for senior or assisted living and feel comfortable affording those costs if you can no longer live independently

• You don’t have any major debts

• You have final expenses covered, including funds to cover any applicable taxes for your

  estate

Talking with your partner or a financial professional can also help you develop your plans as a term life policy approaches its end.

Signs you might still need life insurance

In other cases, though, a term policy might end well before you feel comfortable self-insuring with your own funds without including a policy benefit as part of your plans. If you bought a 20- year term policy in your 20s, you could be only halfway through your career when your coverage ends. Or you may expect to be an important financial provider for loved ones well into your senior years and wish to include a potential life insurance benefit as part of your overall financial and insurance planning.

If your financial priorities include continuing to care for children or grandchildren, or you’re stressed about leaving loved ones without funds to handle your final expenses, continuing life insurance coverage can help provide that extra degree of security and a benefit for your chosen beneficiaries.

What Are Your Life Insurance Options?

The best option for you depends on your overall financial situation and personal factors like your health. Here are some choices to keep in mind after your policy ends.

Self-insure

A financial professional can help you go through your assets, financial plans and debts. If you expect your savings to be enough to handle anticipated expenses (and you have a plan to get emergency cash if needed), one option is to pay your last life insurance premium and move on.

Renew your current policy

You typically have the option to extend a term life insurance policy on a year-by-year basis. You may not have to go through underwriting again, but your premiums may change (your life insurance contract will have details on maximum premiums for each year). This option tends to fit best for people whose health may have deteriorated, but who still want a high amount of coverage. If you’re healthy or want a smaller policy amount, you might find more cost-effective options elsewhere.

Find a new term life fit

Another option is to get a new policy, which entails going through the underwriting process again. Getting older means facing higher premiums than when you bought your old policy. If you have more health issues, that can affect your risk classification (and rates) too. But one advantage is you may not need as much coverage as in the early stages of your career and family life. This is a good time to scale your life insurance policy to fit your current needs — and if you need less coverage, that will help with your new premium costs.

Generally speaking, term life insurance tends to be a more cost-effective option than other life insurance products. If you need more time (but still expect to move past a need for insurance eventually), a new term policy can be a good way to put off the end of life insurance for you.

Consider whole life insurance

Some families may start out with a term life policy, but decide that they actually don’t ever see an end to their need for coverage. This might be the case if you have lifelong dependents, such as children with conditions that need ongoing care. Or a financial professional might suggest a whole life policy as part of a wealth management plan, based on your overall financial profile.

Whole life insurance covers you for your entire life as long as premiums are paid, so your beneficiary gets a guaranteed benefit as long as your policy is active. This type of life insurance can also accumulate cash value over time. If you were to take a withdrawal or loan from the policy, withdrawals may be subject to charges, withdrawals of taxable amounts are subject to ordinary income tax, and, if taken before age 591⁄2, may be subject to a 10% IRS penalty. Interest is charged on loans, and loans may generate an income tax liability, reduce the account value and the death benefit, and may cause the policy to lapse.

Look into simplified insurance

If your health has worsened, it can be harder to find competitive life insurance options. Simplified issue insurance typically allows for quicker approval and coverage and generally does not require a medical exam. Coverage caps may be more limited, possibly around $100,000 or less, but you can cover final expenses and reduce the financial impact on your estate if you have outstanding debts.

Ending a life insurance policy on your terms can help you feel confident about how you’re managing your finances. Throughout the years of your policy, keeping track of progress toward your goals will help you answer whether you’re ready to end life insurance or want to make new arrangements after your policy ends.

Fabric exists to help young families master their money. Our articles abide by strict editorial standards.

Information provided is general and educational in nature, is not financial advice, and all products or services discussed may not be offered by Fabric by Gerber Life  (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Consult an attorney or tax advisor regarding your specific legal or tax situation. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. The views and opinions of third-party content providers are solely those of the author and not Fabric by Gerber Life.