Wow, it seemed like yesterday that you bought your 10-year level term life insurance policy and at that time 10 years was a long way out. Heck, if the markets performed well, you may not have had to maintain life insurance beyond 10 years (so much for wishful thinking). Now you are 9 years and 6 months into your policy and you only have 6 months left on those very cheap premiums. So what are your options?
Well, your ultimate decision will depend upon your specific circumstances….
The first option, and likely not the alternative for most, is to ride out your 10-year level term policy and simply drop it once the premiums begin to increase. This obviously assumes that you no longer need the life insurance coverage and the policy has served its purpose.
If you are like most people and you still need to maintain life insurance after the initial 10 year period your best options will be to replace your current 10-year term policy with a new policy usually from another insurance company (that will offer the most competitive rates). The big assumption here is that you are insurable. In order to qualify for a new policy your health must be acceptable to the new company. Obviously, the better your health, the better your rate. You can certainly expect to pay more for the new policy as you are now10 years older, but if you are in really good health, your rates will still be very reasonable. However, If you have had a health change during the initial 10-year term, you may end up paying considerably more to extend your life insurance at level rates. That is a chief reason to lock-up a longer level term policy at the outset if you know you are going to need to maintain life insurance for a longer term.
If you have had a substantial medical problem during your inital 10 year term period and your health does not permit you to qualify for new life insurance with another company, then you are essentially uninsurable. This is rarely the case but if you fall into this group you only have a couple of options.
Most level term plans are renewable beyond the initial level term period albeit at a significantly higher rate. If you are unable to qualify for life insurance elsewhere, and still need to maintain coverage, you can always continue your 10-year term policy beyond the level premium period and pay the significantly higher renewal rate. With most companies, the renewal rates increase annually so you are fighting an uphill battle with dramatically increasing premiums as you get older. Eventually the cost to renew your policy will become prohibitive so if you are forced to go this route you can expect sharp prices increase to maintain coverage.
The final option, if available on your policy, would be to convert or exchange your level term insurance policy to a permanent life insurance policy. This option is considerably more expensive than qualifying for new insurance but if you cannot prove your health, the right to convert your policy will protect your insurability. So, if you have the conversion option and you are uninsurable for life insurance with another company, your exisiting company will allow you to exchange your term policy for a new plan of insurance usually offering a level rate without proof of health. This conversion option can prove extremely valuable if you ever have to use it which is a good reason to ask about this option when applying for any new life insurance policy.
In summary, regardless of your circumstances there are options for you as you approach the end of your level term period. In a perfect world, you may not need the coverage and can simply drop it. However, if you are like most and still need to have life insurance in place, you can replace your policy with a new policy if you are healthy and can qualify medically. In the unfortunate event that you are uninsurable, most life insurance companies offer renewable policies that you can continue as long as you pay the increased rates. Finally, conversion is a great option for those that can no longer qualify for life insurance and want to maintain coverage for the long term