When Term Life Insurance Ends

Faith & Finance

They say life insurance is like a parachute. If you don’t have it the first time, odds are you won’t need it again.

While that’s a funny line, all kidding aside, life insurance is the only way most people can provide for their families if they should die. But what happens when it ends?

Term life insurance is often recommended due to its simplicity and affordability. Unlike whole life insurance, it doesn’t combine investing with a death benefit, allowing you to invest separately for better financial returns. But when your term life insurance expires, what should you do? Let’s explore the four options available to you.

1. Let the Policy Lapse

When your term life insurance expires, you can choose to let the policy lapse. This option may make sense if you no longer need life insurance. For instance, if your kids are grown, out of the house, and supporting themselves, and your spouse’s income (plus Social Security survivor benefits) can cover their needs, you might find that life insurance is an unnecessary expense. In such cases, you can redirect that money into your retirement savings or other financial goals.

2. Purchase a New Term Policy

You may need a new term policy if you still have dependents who rely on your income or if your spouse’s income cannot cover your household expenses. A common recommendation is to aim for a death benefit that’s 10 to 12 times your annual salary.

However, be prepared for higher premiums. The cost of a new policy increases with age, so a 50-year-old male could expect to pay around $80 a month for a $500,000 policy—about four times what a 30-year-old would pay for the same coverage. That said, you may need less coverage if the policy is intended only for your spouse, such as a policy that would cover your remaining mortgage balance.

Ways to Reduce Premiums:

• Lower the death benefit: If a $500,000 policy is too expensive, consider reducing the coverage to $250,000 or another lower amount that still meets your needs.
• Shorten the term: If a 20-year term is costly, a 10-year term might be sufficient to ensure you meet financial obligations like paying off a mortgage.
• Pay annually: Some insurance companies offer a 5% discount if you pay your premiums in a lump sum once a year rather than monthly.

3. Extend Your Current Policy

Another option is to extend your existing term policy. The advantage here is that you won’t need a medical exam or any additional underwriting. However, the cost will likely be higher because the insurer assumes more risk by not evaluating your current health. If you’ve developed a severe medical condition that disqualifies you from purchasing a new policy, extending the current one may be your best option—if you can afford the premiums.

4. Opt for a Simplified or Instant Issue Policy

If extending your policy or getting a new one isn’t feasible, you can consider a "simplified term" or "instant issue" policy. These policies don’t require a medical exam, and you can often get approved online. However, there are some trade-offs:

• Smaller death benefit: Instant issue policies tend to offer lower coverage amounts.
• Shorter term: The length of the policy may be shorter than standard term policies.
• Higher premiums: The convenience of skipping a medical exam comes at a price, as these policies often cost more than traditional term policies.

Despite these drawbacks, an instant issue policy could be a blessing if other options are unavailable due to medical conditions or financial constraints.

When your term life insurance expires, you have several options, each with pros and cons. Whether you let the policy lapse, buy a new one, extend your existing coverage, or opt for a simplified policy, the best choice depends on your current financial situation and future needs. Evaluate your options carefully to ensure you’re providing for your loved ones in a way that aligns with your budget and long-term goals.

On Today’s Program, Rob Answers Listener Questions:

• My husband's new church is providing a portion of his salary specifically for retirement, and they want us to manage it. We've already maxed out our Roth IRAs. What's the best way for us to save and invest this additional retirement money the church is giving us?
• I have a 22-year-old son who is graduating with a computer science degree. He's worked part-time since high school and is very frugal with his money. Now that he'll be making much more money in a full-time job, I don't have much financial wisdom to offer him when investing his money. What percentages should he put into savings versus investments? And what would be the best way for him to invest his money?

Resources Mentioned:

• Open Hands Finance
• List of Faith-Based Investing Funds
• Look At The Sparrows: A 21-Day Devotional on Financial Fear and Anxiety
• Rich Toward God: A Study on the Parable of the Rich Fool
• Find a Certified Kingdom Advisor (CKA) or Certified Christian Financial Counselor (CertCFC)
• FaithFi App

Remember, you can call in to ask your questions most days at [phone]. Faith & Finance is also available on the Moody Radio Network and American Family Radio. Visit our website at FaithFi.com where you can join the FaithFi Community and give as we expand our outreach.