Come to Terms: What To Do When Your Term Life Insurance Policy Is Coming to an End
Are you seeking valuable protection for your future and your loved ones? A term life insurance policy can be an important piece of the puzzle.
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While we know that life insurance is a way to protect your dependents’ financial future, there is a common misconception that it’s expensive to buy. In fact, 8 out of 10 consumers overestimate the expense of getting a policy, according to the 2022 Insurance Barometer Study, from Life Happens and LIMRA.
Term life insurance is a straightforward type of life insurance that can be affordable: You pay fixed premiums for a set period of time—usually between 10 and 30 years—and if you pass away during that period, your beneficiaries receive the death benefit that is generally tax-free.1 And while the cost can vary significantly based on factors such as gender, age, policy type, coverage amount and length of coverage, according to Forbes Advisor’s analysis 2, a 30-year-old man could pay an average of $13 a month ($159 a year) for a 20-year $250,000 term life insurance policy, and a 30-year-old woman could pay an average of $12 a month ($142 a year) for the same term and coverage.
Keep in mind that the choice of life insurance type and the coverage amount will depend a lot on your budget and personal situation. That’s where your agent can be extremely helpful, suggesting options that make sense for you. According to the American Council of Life Insurers 3, 48% of Americans had term life insurance in 2019, and the median face value for an individual policy in 2021 was $190,000.00.
Common questions when renewing your term life insurance policy
Perhaps you have a term life insurance policy that’s reached its end of term, or maybe you’ve had significant family events that have altered your needs. If you’re unsure about the amount and type of coverage that’s right for you, it’s a good idea to get a personal needs analysis.
AAA has dedicated professional life insurance specialists who will work closely with you and help you get the coverage that’s right for you and your family.
Here are some common questions about term life insurance, with answers that can help guide you as you consider protecting your family’s financial future:
Q: Will my renewed term life insurance policy have higher premiums?
The answer is yes. Term life insurance provides protection for a limited time, after which you will be older and might have health conditions—two things that may affect the cost and coverage of a policy.
Say you are a policyholder at the end of a 10-year term. You can extend the policy with no underwriting, but the premium you’ll pay could be substantially higher than what you’re currently paying for the original term and will increase each year thereafter. While that’s not ideal, there are still scenarios where it might be worth doing.
If during the original 10-year term you developed a condition that made you uninsurable, and you had gone past the original policy’s conversion period (the period of time when you are allowed to convert the policy), you could keep coverage by paying to extend the term.
Q: Should I update my death benefit amount upon renewal?
If your circumstances have changed and, for instance, you have a higher mortgage payment or want to figure in the cost of a child’s education, you could increase the amount of coverage by applying for a new policy at a higher face amount, or you apply for an additional policy to complement the first one if it’s an older policy with a good premium. (Once a policy is approved, you can reduce the coverage amount, but you can’t increase it. If you want more coverage, you’ll need to apply for an additional policy.)
Because you can usually get a large amount of term insurance at a competitive price, especially if you’re young and in good health, a term life insurance policy can be a smart way to protect your family if you have a mortgage, upcoming college expenses or other forms of debt.
Q: Is there a cash value associated with my policy?
The face amount of the term insurance is determined by the client's needs and budgetary considerations. Permanent life insurance, on the other hand, does have a cash value feature, and the coverage will not end as long as you pay the required premium.
Term life has no cash value, but if you are 50 years old or younger, you might consider applying for AAA Life Insurance Company’s Traditional Term Life Insurance term policy with “Return of Premium” rider (ROP).
What are insurance riders, and how do they work?
Learn More >>
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Q: Do I need to update my beneficiaries?
If there have been any family changes, and you want to add or delete someone or change the percentages allocated, you should update your beneficiaries. Your life insurance needs are likely to change throughout your lifetime, so it makes sense to review your coverage annually with a life insurance specialist. Check your policy to see your listed beneficiaries and update it if necessary.
It’s also prudent to name a contingent beneficiary—someone who will receive the benefits if the primary beneficiary passes away before you do. By keeping your policy up to date with your beneficiaries—and letting those people know the details of your policy—you can help make sure the payout goes where you want it to without delay or confusion.
Q: Can I switch to a whole life or permanent life insurance policy?
Your term insurance may have a conversion feature, allowing you to turn your policy into permanent insurance coverage. Because life insurance rates are dependent on current age and health, having a chronic illness or a recent struggle with cancer, for example, may make getting a new policy more difficult or costly.
When you convert your term to a permanent policy, you don’t need to have a medical exam or provide evidence of insurability. Unlike a term policy, a permanent policy can cover you for as long as you continue to pay the required premium, plus you’ll have the added benefit of its cash value feature. Keep in mind that because of these added features, your permanent life insurance premiums may end up being higher than your term life premiums.
An Express Term policy through AAA can be converted to a whole life product at a standard rating. (Apply online and you can get covered quickly if you qualify.)
Check your current policy (or have your agent check it) to see if conversion is an option that’s available to you. Many policies have a conversion feature, so you may have one even if you don’t remember it. In addition, there is usually a set period of time during which you can convert your policy, and there’s also a maximum age for converting a policy, usually 65.
1 AAA Life and its agents do not provide legal, financial or tax advice. Therefore, you may wish to consult independent professional advice prior to the purchase of coverage.