What is a Term Life Insurance Policy?
As the name implies, simply put, it has a specified period of time. Generally, the time period ranges from 10-30 years. There are many types of term life policy such as:
- Instant Decision Term Life Policy.
- Annual Renewable Term Life Policy.
- ROP Return on Policy Premiums Term Life Policy.
- No-Medical-Exam Term Life Policy.
- Group Term Life Policy by Employer.
Term Life Policy is affordable, and helps people insure their loved ones for a certain time period. Time period can span from 10 to 30 years. Although financially better off people opt for a Permanent Life Insurance Policy. Permanent policy includes Universal life policy, and Whole life policy.
The Permanent Life Policy is pricey but it allows your dependents to reap the full reward of your sensible and timely insurance decision. The Policyholder has to pay level premiums all their life on a monthly basis. But the Death Benefit pay out, actually serves the purpose of complete protection of your loved ones.
What should I do now that my Term Life Insurance is about to end?
Term Life Policy is preferred by people due to its pocket-friendly nature. But what would you do if you outlived your term life insurance and your policy is about to expire now? Here’s a complete and comprehensive guideline to ensure that it still reaps you, maximum benefits.
There are three solutions, choose the one suitable to your budget:
- Renew your Annual Term Life Policy-Not Recommended!
- Convert all or portion of your policy to Permanent Life Policy.
- Shop around and Buy a new Term Life Policy with an informed decision.
Why shouldn’t you retain and renew your Term Life Policy every year?
With every passing year, the premiums will get higher since you are becoming older. You are not entitled to pay a similar amount of monthly premiums from last year. For a permanent life policy, you can avail the Level Monthly Premiums. Their amount does not increase for a lifetime.
Why should you convert your Term Life Policy to a Permanent Life Policy?
First and foremost solution, if you outlive your term policy, is to convert it into a permanent one. Permanent Life Insurance Policy has two types:
Convert to the one that suits your budget! This way you keep up paying premiums every month till your death, but it ensures a financially independent future for your dependents, after your death.
Permanent Life policy has an upside that it pays off monumental Death Benefit pay out for your beneficiaries. But it is so very pricey, it is around 5-15 times costlier than a Term Life Policy. So choose wisely!
Why is buying a new Term Life Policy the best solution?
After your term life policy expires, you can convert to permanent but it will cost you a great deal. Not so feasible practically! Similarly, if you renew it annually, you can forgo the medical exam but your premium monthly payments will keep on rising every year.
Isn’t it a lot better to buy a new one? Obviously since your term of last 20 years ended. All your life scenarios have changed monumentally. Reassess your needs now!
Number of dependents left, coverage required now, amount of pending loans are the determining factors for the new Term Life Policy. Research online, call many insurers, brokers and agents. Compare many options and go for the best suited option.
When should you start looking for other options?
The right time for any sensible person would be, at least 6 months in advance, before your term life policy expires. If you fail to do the homework, if you outlive the term life policy. And if you pass the expiry date, you and your beneficiaries will stay uninsured for that gap. God forbid if you die at that time, your dependents will go unprotected.
Which Term Life Policy is best?
ROP Return on Premiums is highly costly compared to all other types of term life policies but it is much better. It is the only one with the Cash Value added to it. You will be compensated for the paid premiums if it expires and you’re still alive.
Why do Term Life Policy premiums go unrefunded if it expires even after 30 years?
To understand the concept of a term life policy, you must try to compare it to auto insurance or health insurance. Let’s try with an easy example, as long as you are living your term you have to pay minimal premiums compared to Permanent life policies.
It is like paying rent for a house on lease. As long as your lease extends, and you pay the monthly rent. You get to enjoy the benefits of the house. But if your lease expires, you have to renew it and then you can avail the protection of that house with rents, again.
If you die in between your term, your beneficiaries are financially covered with almost the same death benefits as a permanent policy. Though you paid 5-15 times less for purchasing a term life policy. However, if you outlive it, obviously you will renew it or buy a new term policy.
Why should you always go for a Permanent Life Policy?
Permanent Life Insurance policy includes a Whole Life Insurance Policy and a Universal Life Insurance Policy. Whichever you pursue, the benefits or disadvantages can be:
- This is for a lifetime.
- You would not have to renew it.
- Your monthly premiums are leveled, no increments.
- These have a Cash Value factor added to them.
- Whenever you die, your beneficiaries get the Death Benefits.
- 5-15 times higher policy cost price.
The best options if you can afford are:
- Permanent Life Insurance Policy.
- ROP Return on Premiums Term Life Policy.
If you’re really confined by budget, take the Annual Renewable Term Life Policy for 20 years and keep your fingers crossed for dying within those 20 years!