Should You Extend Your Life Insurance Policy?

Shawn Plummer

CEO, The Annuity Expert

Life insurance is like that dependable friend who shows up in our most dire times of need. It is a protective shield, ensuring financial safety for your loved ones when you’re no longer around. But what happens when your term life insurance is nearing expiration, and can you extend your life insurance policy? This question nudges many policyholders to contemplate extending their life insurance policy. This guide will navigate you through this dilemma, addressing your queries in a comprehensive, reader-friendly manner.

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Can You Extend Your Life Insurance Policy?

Absolutely! Extending your life insurance policy is a plausible option. The technical term for this process is “policy renewal” or “term conversion.” This means that once your term life insurance policy reaches maturity, you can choose to renew it for another term or convert it into a permanent one. However, it’s crucial to note that changes to your policy may have tax implications, and it would be wise to consult with the IRS or a tax professional to understand these fully.

Let’s illustrate this with an example. Suppose your 20-year term insurance is due to expire next month; you can choose to renew it for another term. Renewal terms can vary, often extending to 10, 15, or 20 years. Alternatively, you can convert this term insurance into a permanent policy, such as whole life insurance, offering coverage for the rest of your life.

Should You Extend Your Life Insurance Policy

What is an Extended Life Insurance Policy?

An extended life insurance policy essentially refers to a policy that continues beyond its initial term. There are two primary ways to extend your policy: renewal and conversion.

  • Renewal: When you renew a term life insurance policy, you buy the same policy for another term. However, it’s crucial to note that premiums typically increase upon renewal due to age and potential health changes.
  • Conversion: With conversion, you switch from term life to permanent life insurance like whole life or universal life insurance. This ensures lifelong coverage and additional benefits like a cash value component.

To make this more understandable, consider John, who initially bought a 20-year term insurance policy. As his term ends, he decides to extend his policy. He can either renew for another term, say ten years, or convert his policy into a whole life insurance covering him for life.

Extending Your Life Insurance Policy

Should You Extend Your Life Insurance Policy?

Extending your life insurance policy primarily hinges on your circumstances and financial goals. Here are some factors to consider:

  • Your Age and Health: If your health has deteriorated since buying the initial policy, renewing or converting it might be wise, as it might be challenging to secure a new policy at affordable rates.
  • Financial Dependents: If you still have dependents who rely on your income, such as children or a non-working spouse, extending your policy ensures their financial stability in your absence.
  • Financial Obligations: Life insurance can protect your loved ones from financial burdens if you have significant liabilities like a mortgage or business loan.

For instance, consider Laura, a 50-year-old with a home mortgage and two school-going children. As her term insurance nears its expiry, extending her policy would be prudent, given her ongoing financial responsibilities.

Next Steps

In conclusion, extending your life insurance policy is a choice that depends on your circumstances. Weigh the factors that might impact you and your loved ones and make an informed decision. Remember, the ultimate goal of life insurance is to provide financial protection to those you care about. Hence, if your term life insurance expires and you believe your loved ones still require that safety net, an extended life insurance policy could be the right path forward.

How Long Does Protection Normally Extend

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What are the benefits of extending your life insurance policy?

Extending your life insurance policy allows you to continue to provide financial security to your loved ones. It also helps to keep pace with inflation and may allow you to take advantage of any improvements in your health.

What are the drawbacks of extending your life insurance policy?

Extending your life insurance policy can be more expensive than purchasing a new one, may not cover you for as long as you need, and may no longer be eligible for the same coverage and benefits as your original one.

How do I know if I should extend my life insurance policy?

You should extend your life insurance policy if you still have dependents who rely on your income, if your coverage no longer meets your needs, or if you have taken steps to improve your health.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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