Terry’s Columns Term Insurance Running Out?

Term Insurance Running Out?

By Terry Savage on July 31, 2018

It seemed like a good idea at the time. Back when you bought that term insurance policy it was the least expensive premium that purchased the maximum coverage. Your limited dollars bought more insurance – for a term of 20 or 30 years.

Your family was young and thirty years seemed a long time away. By then, you figured, your children would be out of college and your mortgage would be paid off. Why would you need life insurance? You’d have built up your retirement savings to protect your family.

And the salesperson promised that if you did need extended coverage, you could “convert” your term policy to a regular whole life policy.

But now that your term policy is about to expire, you’re finding out the hidden caveats and new needs that have you struggling to find life insurance when you are neither young enough or healthy enough to get coverage at premium rates.

It’s called the “great term limit” crisis, according to Ted Bernstein, president of Life Cycle Planners in Boca Raton, Florida. He’s a long time-expert in the insurance industry. Bernstein relates the story of a client who had purchased $2 million of 20-year term at age 42. The client’s “preferred” premium was just slightly over $3,000 a year. He was still married to his first wife, and the youngest of his two children was nine years old. He figured that in twenty years the kids would be on their own and the need for life insurance would disappear.

Then he got divorced – remarried, and started a new family. His term insurance policy now has only two years left to run. And because of his cholesterol and weight issues, as well as prescription-controlled high blood pressure, the cost of a new $2 million policy for15-year term is now $12,000 per year – if he can qualify for standard rates!

Since, he can’t afford those high annual premiums, his choices come down to purchasing less coverage – or taking coverage for a shorter duration. This is a classic example of how life changes, and along with it, the need for life insurance.

You might be wondering about that initial “conversion privilege” in his first term policy. Sadly, many agents failed to explain that the conversion was allowed only in the first 7, or 10 years – not at the expiration of the policy. Once past that conversion period, your only choice is to qualify for a new policy.

And even inside the conversion period, you may be limited to converting to a very expensive policy offered by the company. You’re trapped If you cannot qualify based on health for a less expensive policy with another company.

Bernstein says he is seeing this situation with more and more people who are reaching middle age with term policies expiring.

What to Do Now:

• If you’re buying a term policy now, work with an agent who can help you understand the possibilities of future needs, and the limitations on the conversion privilege.

• If you have an existing term life policy, ask the insurance agent or company the date on which the conversion privilege expires. And while you’re at it, check to see what the new post-conversion policy would cost on an annual basis — just in case you decide to make the switch before the conversion period expires.

• Decide whether the amount of coverage is as important to you as the duration of coverage. Is it better to have $1 million of coverage for twenty years, but risk have having no coverage at all after the policy expires? Or should you consider a permanent life policy that will pay $500,000 and remain in force your entire lifetime?

Term life insurance is the ideal policy for the young and growing family. But you can’t just put it away and forget it. Along the way it might make sense to purchase additional permanent coverage. That’s the Savage Truth!



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