I stumbled upon this post from 2018 that may be happening to millions of people as you read this post. As we turn to 2021, in the age of pandemic, many are turning to life insurance as a way to safeguard the family finances in case of death.
Life insurance policies that expire or may expire are very common and always look like a great deal until you outlive it.
The most common type of life insurance that expires is a term life insurance. It is cheap because life insurance companies hardly pay any claims, as most outlive it. Compare that to accidental life insurance as the odds of dying from a natural cause are even lower.
The second most common is the universal life insurance, which has a flexible premium feature with a minimum premium and a maturity date. If you pay the minimum, the policy may expire, but you can raise the premium when you have some extra income, and it will last longer and may even help with your retirement.
The renewable term life insurance is becoming popular because of the low initial payment, but it is the trickiest of all. Not only it expires, but if you start at 50 the premium may go up 10 fold or more. You may start with a $20 payment at 50, but receive a bill of more than $200 when you turn 85. Then it expires on you at 80, 85 or 90. The fact is that most people cancel the policy before the expiration date because it becomes increasingly unaffordable.
In order to guarantee that the policy will stay in force until your last day, it has to be whole-life. It is the only life insurance guaranteed to last till your last day by contract. It will be paid out.
What can I do to have the guarantee if I have one or more of those policies today?
If you have your term life insurance for long enough time, it may be a good idea to keep it because you are paying very little for very much. It would be e a good idea to add small whole-life insurance to account for the final expenses. You may have to squeeze it in your budget, but it is the price of the “guarantee”. You can always add a little more later.
If you have fixed or fixed indexed universal life, ask your agent to recalculate your premium so the illustration shows a cash value at 100 years old that matches the amount you want for your burial insurance.
If your policy is a variable universal life then you should be well now that the stock market is very high, but it can change without warning. A word of caution: convert your variable universal life to at least a fixed indexed universal life.
If you have a renewable term life insurance you should switch to smaller whole-life insurance knowing that it is guaranteed to stay affordable, and guaranteed to stay in force until your family needs it. You can wait till the payment goes up again, but you’ll be older then and your health can change, affecting your rates on the new policy. Two very popular brands are Globe Life’s adult term life insurance, and AARP’s Level Benefit Term Life Insurance.
She would pay them a premium of $500 a year for the rest of her life. And they would someday provide a death benefit of $25,000 to cover her funeral and burial.
But the cash value of her policy started to dwindle away, and by her 98th birthday, the death benefit would be gone, too.
“In my words, they’re penalizing me for living,” she said. “I hope nobody else takes out that policy because they’re going to have the same problem I’ve got right now. When they need it, it won’t be there.”