Amy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Written By Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Managing Editor, Insurance Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
| Lead Editor, Insurance
Updated: Oct 10, 2022, 10:00am
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When you buy term life insurance you lock in your rate for the level term period, such as 20 years. Common options for level term periods are 5, 10, 15, 20 and 30 years, with some companies even offering 35- and 40-year terms.
Ideally, you will buy a term length that closely matches the financial concerns you want to cover. For example, some people buy term life insurance to cover the years until they retire, so a life insurance payout could be used by their family as income replacement.
But what if you get to the end of your level term period and you still need life insurance? One option may be to renew the existing term life insurance policy.
Term life insurance renewal is an option offered on many, but not all, term life insurance policies. When you buy a term life policy that has a renewal option, the policy will outline the future renewal rates. For example, if you buy a 20-year term life policy for $500 a month, the documents will show a premium of $500 for years one through 20, then a renewal rate starting at year 21.
Prepare yourself for a serious rate increase if you renew a term life insurance policy. The cost is going to be much higher than what you paid during the level term period, and can quickly become unaffordable.
“I tell people, in advance, that when they get their first bill after the level term period ends, to make sure they’re sitting down. Sticker shock is the most common reaction, even though these renewals are illustrated in advance at the time of purchase,” says Byron Udell, an independent life insurance expert.
Here are real-life examples of term life insurance renewal rates.
Here are rates for a 30-year-old male who’s buying a 20-year term life policy. If he renews it at age 50, the cost jumps from $700 a year to $11,310 a year—more than 16 times what he had been paying for the last 20 years. And that’s just the start of the financial pain if he continues to renew every year.
Here’s another example for a 30-year-old male who’s buying a 20-year term life insurance policy. Similar to the first example, he will experience a shock to the wallet if he renews in 20 years.
Here’s a look at renewal rates from one insurer for a 40-year-old who buys a 20-year term life policy that he can renew starting at age 60. In 20 years he’ll be looking at a renewal cost that’s about 20 times what he paid during his level term period: From $1,183 a year to $23,760 a year. And the annual cost increases every year from there.
Considering the staggering costs of renewal, why would anyone choose to continue a term life policy once the rates are no longer steady?
Renewal could make financial sense for someone who is severely ill and expects there will be a life insurance payout to their beneficiaries within a couple of years. This person won’t qualify for a new life insurance policy, so paying, say, $50,000 for another two years in order to keep a $1 million death benefit in place makes sense.
While the renewal rates will likely be shocking, they shouldn’t be surprising.
“To see what a particular insured’s renewal rates are, they simply need to look at their actual policy. They’ll be on one of the policy pages, clearly listed,” says Udell.
“The bigger question is for those folks not yet at the end of their term,” he says. “If they know that they aren’t going to be done wanting the coverage when the term is scheduled to expire, waiting can be risky.”
It may be a smarter strategy to shop for a new life insurance policy as soon as possible, rather than wait for the bonkers renewal rates to kick in.
“Their health may change between now and then, which could make buying new coverage either prohibitively expensive or unavailable altogether. If they’re healthy today, they may want to explore replacing coverage to put off the day of reckoning further into the future,” says Udell.
Another option could be to convert the term life policy to a permanent policy, such as whole life or universal life insurance. The options will depend on what your life insurance company currently offers. Conversion will give you coverage for the duration of your life, but also at a substantially higher price. There’s usually a window of time for converting, and you can’t always wait until the very end of a term life policy to convert it.
If you’re interested in doing a term life insurance conversion, ask your life insurance agent to run the rates for conversion. For a complete picture of your choices, also look at rates for buying an entirely new term life insurance policy.
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