In an ideal world, you buy life insurance when your kids are young or you’ve purchased your first home, and you need the coverage only for about 20 years. By the time your policy nears the end of its term, your kids are on their own, your house is mostly paid off, and you’ve accumulated enough money in retirement savings for your spouse to pay the bills if anything happened to you.
But these days, many people in their fifties are still supporting grown kids who graduated with student-loan debt, or they’ve refinanced their mortgage and locked in a new 30-year term. They may have been divorced and are now supporting a new set of kids. Or they still haven’t saved enough to retire comfortably. Their coverage is about to end, but they still need the security that term insurance provides.
“This is happening to thousands of people because 20-year term insurance first became popular about 20 years ago,” says John Ryan, CEO of Ryan Insurance Strategy Consultants in Greenwood Village, Colo., who works with fee-only financial advisers. Even though you can keep your policy beyond the initial term, the premiums jump enormously, and continue to increase. A 37-year-old man in good health who buys a $500,000 20-year term policy could pay about $360 per year for 20 years. But in year 21—at age 57—the premiums jump to $6,900 or more depending on the company, says Byron Udell, CEO of AccuQuote.com, an independent insurance brokerage.
Fortunately, you have a number of options for extending your coverage, including some that didn’t exist when you bought insurance a couple of decades ago. Term insurance rates have decreased significantly over the past 20 years, and if you’re in your fifties or early sixties and relatively healthy, premiums for a new policy can still be affordable. Some policies even provide “living benefits,” which allow you to tap your death benefit early if you have a chronic illness, or they can double as long-term-care insurance. If you have health issues, you may be able to convert your current coverage to a permanent policy that remains in force for the rest of your life.