When it comes to choosing life insurance, term insurance offers several benefits including simplicity, predictability and affordability. Lower premiums in the early years allow you to maintain the same standard of living while providing you with crucial income replacement and even the opportunity to pay off debt if something were to happen to you.
Term insurance tends to be the most cost-effective solution for your income needs at the start, but over time it becomes substantially more expensive. For that reason, it’s always important to circle back every once in a while – particularly before the term renewal date – and review your needs as well as the various options available to you.
Below are some of the details that you should consider before your term insurance comes up for renewal:
What are your needs today?
Have you and your Advisor completed an insurance needs analysis? It is very likely that life has changed a little since your plan was first put into place. This analysis will help determine your current needs as of today – do you continue to need this insurance and if so, is the coverage still enough? If you’ve bought a house, started a family, or incurred more debt since your plan was initially purchased, you may now need additional coverage.
Do you have estate goals?
Is your need for insurance still temporary? For example, if you’ve reduced your mortgage debt (congrats!), perhaps you now need insurance that is a little more permanent. Additionally, you may want to start thinking about your estate and the issues that may arise from that including final expenses, tax liabilities, capital gains, inheritance and charitable donations. If its time to consider your estate, one option may be a partial conversion to permanent insurance to tackle your estate and re-application for a new term policy to handle the remaining temporary need.
What is the current state of your health?
The good news is that if you do opt to reapply for a new term, you can do so with your existing carrier or a new one, although the cost will start to rise substantially as you age. Having said that, it’s important to understand the guidelines of insurance underwriting; our health tends to falter as we get older, making the purchase of life insurance a little trickier – the old adage of ‘the sooner the better’ applies in this case. Do keep in mind that you have options; guaranteed and simplified-issue products are available for those with existing health conditions.
What is the true cost of waiting?
Beware of the term cycle-loop. It’s easy to replace your exact same coverage with another term solution, but this may just be delaying the inevitable. At one point or another, you will need a more permanent insurance solution, and the longer you wait, the more expensive that solution will become. Remain vigilant of your insurance needs and whether it is time to change your current term to a more permanent insurance option – you may even opt for a combination of the two so you don’t need to worry about the high cost of conversion later.
Term insurance is an excellent short-term insurance option, but there are a few things to consider when the time comes to renew. Be sure to understand your needs and know your insurance options, as well as the varying insurance underwriting guidelines – being aware will allow you to make the right decisions.