For many, life insurance may seem like a complicated investment vehicle. Although this may be true in some regards, life insurance has many different benefits. Between tax advantages and secure growth, you purchased a life insurance policy for a reason. Whether it was to secure your family’s future or to save up for an investment opportunity, there is a benefit to keeping a life insurance policy. This article discusses some important life insurance options to consider when your term policy expires and how they can benefit you and your family in the long run.
Why Life Insurance?
At the end of a policy term, the first question one may have is: Why should I continue to invest in life insurance? It’s important to remember exactly why you invested in the first place and whether your goals have stayed the same or changed.
One of the most common reasons individuals choose term over whole life insurance is for less expensive premiums. Paying for a death benefit at a cheaper premium price is more attractive to individuals looking for an affordable price to secure their family’s future should they pass away. If this remains your goal, non-renewing your policy essentially defeats the purpose of investing in the previous term.
Another reason individuals choose term is that the death benefit can supply replacement income in the event the insured passes away. It’s important to consider whether you and your family could survive the impact of a sudden passing. To continue ensuring this coverage, it’s important to continue to invest in life insurance.
It’s important to remember why you invested in life insurance to determine the best path forward. What are some common life insurance options you can consider?
Option 1: Let Coverage Lapse
The first option is to let your term coverage lapse or expire. This occurs when you simply stop paying premiums to your policy. In the event of a lapse in coverage, your beneficiaries won’t receive any pay-out once you pass away.
If your policy has expired, talk to your life insurance agent or carrier. Most carriers will allow you to reinstate coverage within two years of your last premium payment.
It’s important to note that a lapse in coverage won’t happen immediately if you miss one payment. Most life insurance carriers have a grace period, which is usually 30 days. You must continue to pay your premium before the period ends to avoid gaps in your coverage.
Option 2: Renew Your Term Policy
In addition, you also have the option to renew your term life insurance policy. Renewing your term policy has a number of advantages compared to letting coverage lapse including:
- You avoid paying higher premiums depending on your age, health from when you first bought your term policy.
- You won’t have to undergo medical tests associated with reinstatement.
- You can take advantage of any tax benefits associated with life insurance.
However, if you decide not to renew and still want to obtain coverage down the road, you may also purchase a new term life insurance policy.
Option 3: Convert to a Permanent Policy
Another option is to convert your term policy into a permanent life insurance policy. Known commonly as Whole Life or Cash-Value Life, permanent life insurance policies are structured differently than term policies.
Compared to term life insurance, Whole Life has several unique benefits including:
- Cash-value accumulation through premium investment & dividend reinvestment
- Death benefit
- Additional tax advantages
- Living benefits
Although the structural difference of Whole Life allows for different unique benefits, the main drawback is that premiums are more expensive. This is because of the cash-value component of the policy, which allows an individual to grow their capital through different built-in investment strategies.
For individuals with term life insurance, converting to a permanent life insurance policy may be beneficial for a few distinct reasons:
- Protect a life-long dependent such as a child with special needs
- Build cash-value savings
- Save up for an investment opportunity
- Estate planning
Ultimately, the decision to convert to Whole Life is dependent on your financial goals as an individual or a household.
Learn About More Life Insurance Options
At the expiration of your term life policy, there are plenty of life insurance options you can take. It may seem overwhelming at first but in the end, it’s important to focus on why you purchased life insurance in the first place and what your current goals are.
Want to learn more about your life insurance options?
Contact a professional at PTT Financial to find out how your goals can be put into action.