Life Insurance Policy Review: When, How & What to Look for
Term life insurance resides at the intersection between security and affordability. One reason it's attractive to young families because it not only provides protection for loved ones at a time in life when debts and responsibilities are likely high, but it also shouldn't break the bank. As you age, though, your priorities are likely to change.
Even though a term policy might have been the right choice when you were starting a family and had a hefty mortgage to pay off, what about later in life when expenses are lower, premiums are higher, but the need for insurance still exists? Permanent life insurance can help provide the lifelong security that you now want, and if you have a convertible policy, it can be significantly easier to make the switch.
Many term life insurance policies have a clause written into the fine print that allows you to convert your term life policy into a permanent one. You can think of these conversion clauses as a type of lease to buy option. You don't have to take advantage of it, but during a certain window of time, you have the option to convert to a permanent policy without a new medical exam or health questionnaire.
Consider a scenario. If you were to wait until your current term policy expires before applying for a new permanent policy, you would be asked to qualify for your insurance. With age and health as major factors, it's possible that you could face significantly higher rates. Converting early to a permanent policy can help you stem substantial increases in the prices you may pay to continue your insurance. Here are a few reasons permanent life insurance just makes sense.
Converting to a permanent policy may be wise if you have a lifelong dependent. Whether you have a child born with special needs or a loved one who has developed a long term disability, you likely want to provide financial support to these people not just during your lifetime, but for their lifetime as well. A permanent policy has no expiration date, so you can rest assured knowing that at whatever age you pass away, your loved ones are prepared with the help they need to maintain quality of life.
There are myriad justifications for business owners to purchase permanent life insurance as it can help provide security for the company they've spent years building. A business owner with permanent life insurance can use their death benefit to help ensure that the lights stay on long after their gone, but it can do more than that too. If you have multiple children to whom you'd like to leave inheritance, but only one child who is primed to take over your business, a permanent policy can help provide your other kids with an equitable endowment.
Permanent life insurance policies offer greater flexibility in comparison to a term policy. Since with permanent life insurance you carry cash value on your policy, the amount you pay in premiums month-to-month can increase, decrease or even be skipped at your discretion depending on a number of factors. While there are stipulations to these types of changes, in many situations, your policy will stay in effect as long as you maintain a positive cash value. This type of flexibility may become increasingly important as your financial needs change later in life.
As you're likely well aware, final expenses can cost your loved ones a significant amount of money. Term life insurance can help cover final expenses, but obviously only within the window of time that you are covered by the policy. By converting your current policy to a permanent one, you can help ensure that your funeral expenses will be covered regardless of when you pass away.
When you initially purchased your policy, you were probably at a different point in your life. Younger people often have larger amounts of debt and less surplus income than they do later in life. Perhaps you've always preferred a permanent policy, but until now, you couldn't afford it; or maybe you're now considering the benefit of a policy with cash value. Regardless of the reason, if you are now in good financial position, a conversion could help you transition into your ideal policy.
A Few Things to Remember
If you think you'll likely want to continue coverage after your current term life insurance policy has expired, a policy conversion could be the right answer for you. There are a few things to remember, though.
Contact your agent today or get in touch with American General to better understand your options.