It happens for many middle-aged folks: You get a notice that your life insurance policy is about to expire and need to decide if you want to renew your policy or let it lapse entirely.
For many Americans, life insurance is seen as a stop-gap measure to protect young families in case the breadwinner passes away unexpectedly at a young age. But life insurance can also be a valuable asset when you’re older.
But how do you know if you need to renew your policy or if you’re throwing money down the drain? Read our expert advice below.
Pros of Renewing Your Life Insurance Policy
Financial planner Taylor Schulte of Define Financial said there’s one clear reason why people should renew their life insurance coverage.
“If you still have known financial obligations that have not been fully funded or saved for (e.g., college tuition, mortgage), you should renew your term life insurance policy,” Schulte explained.
When Dustin Heiner’s father’s 20-year policy ended, Dustin had the option to add another 10 years to the policy. Since Dustin didn’t think his father would live another decade, he opted to renew the policy. The premiums cost $3,600 a year for a $250,000 policy, and he decided the risk made sense.
Dustin was right: His father passed away a year and a half later.
“So, it was a blessing he left for us in his passing,” Dustin said.
If you’re worried about dying young, renewing your life insurance policy could ease your mind so you’re not wondering if you’re providing enough for your family. Shop around for a few different companies or contact an insurance broker to find the best price for your situation.
To be clear, you can only renew a term life policy. Whole life insurance is purchased for your entire life, while term life lasts for a certain number of years, such as 10, 20 or 30 years.
The Cons of Renewing Your Life Insurance Policy
The purpose of term life insurance is to pay for any expenses your dependents might face if you die early. That’s why single people can often avoid buying life insurance – because there’s less likely to be someone relying on their income to pay the bills.
If you’re close to retirement, have no mortgage or other debts, and have enough retirement savings, you likely don’t need to renew your life insurance coverage.
Plus, financial advisor Stephen Rischall of 1080 Financial said people who have to renew their term life policy often find that premiums have jumped significantly from when they first signed up.
When you sign up for a life insurance policy in your 20s or 30s, you’re probably not paying more than $20 to $50 a month – usually a reasonable cost for peace of mind. But if you decide to renew your policy in your 50s or 60s, you’ll be facing higher premiums for the same benefit. Many term policies require a medical exam, and if you’re older, it might be harder to qualify for a policy.
If you do decide to renew a policy, remember that you can sign up for a smaller payout than you did originally. You might not need the $1 million policy you signed up for when you were in yours 30s. Now in your 50s, a $100,000 policy might be enough to bridge the gap between your savings and what your family will need to be able to pay the bills and live comfortably.
How to Decide to Renew Your Life Insurance Policy
If your term policy is about to expire and you need to decide if you want to renew, make a list of the reasons you might want to renew. Do you still have children you’re taking care of? Do you have a significant balance left on your mortgage? Is your partner reliant on your income? Your answers to these questions can help you decide.
Remember, you might not need to buy the same policy at 75 that you did when you were 25. You can also choose to purchase a 10-year term instead of coverage for 20 or 30 years. If you’re not sure, a financial planner can help you figure out if you need a policy and what amount it should be.
What questions do you have about life insurance? Let us know in the comments below!
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