When you first purchase a term contract from the insurance carrier, one of the last thoughts that most of our clients have is, “What happens if I get to the end of the term period?” Many times we get calls asking if they can extend the coverage. At Innovative Financial Group-Atlanta, we are a full service independent agency that answers this question and many others. Today, I want to share what options to consider since an extension may not possible.
When you purchase a term contract, it will have a definite amount of years such as 10-15-20 where the premium and the death benefit remain the same. Just prior to the end of the term length, you should receive a letter stating what the annual premiums will increase to in order to keep the same death benefit. And those amounts are much higher that what you were paying. Most of the time the cost to keep coverage will be more than the coverage would pay out. With that being said, what options should you consider?
1-Is there a conversion option still available?
As I wrote several weeks ago, a conversion allows you to make your term into a permanent contract and there are no health questions or exams that need to be done. Depending on the carrier, the conversion could be for the first 5 or 10 years while other carriers allow a conversion for the entire length of the contract. I recommend either connecting with your insurance agent (or ask a trusted friend or CPA for the name of someone) or call the carrier directly to find out. If it is convertible, the next step is to find out what product(s) you can convert to and get illustrations sent to you. For this step, I would highly suggest that you speak with an experienced independent agent. That experience will be invaluable to sift through the maze of what will be right for you. Be ready though because a conversion is much more expensive than what you were paying but far less expensive if you were to continue with the current coverage.
2-Get quotes for a new term contract
If the above route is just too expensive and your health is good, getting a new term contract maybe the best option that include several benefits. The biggest is the cost itself. Again, it will be more expensive then what you were paying and normally will be less than a conversion. When you are evaluating the length of coverage, a good rule of thumb to use is the coverage should get you to your retirement years. For example, a 50 year old who will retire at age 65, will only need a 15-year level term. Another benefit is with a new contract comes a new conversion period. This may not seem like a benefit but things happen and change in our lives and having the ability to convert is a plus. Although you may never use it, I have seen over my years where my clients have become uninsurable and now want to keep the coverage.
Don’t wait until you get the end to consider what to do. Every couple of years talk to your agent or find an independent agent through your CPA or financial person to review the options. You may not make a change but knowing the options is critical to your planning. If we can be a resource, don’t hesitate to connect with us at www.ifgatl.com