By Chris Taylor
NEW YORK (Reuters) – Joe Natiello faces what could be called a “nice problem”.
Almost 20 years ago, the 64-year-old resident of Westfield, New Jersey, took out term life insurance to help his family should the worst happen.
However, that policy expires next year, and at his age, Natiello’s insurance premiums will jump if he decides to extend coverage.
Obviously, it’s better than the alternative of not being anymore. But that raises the question for Natiello and any other policyholder in his situation: “Do I need this anymore?”
It’s a tough decision that can raise some pretty big existential questions. Such as: How much time do I have left? What is my health status? Is it still critical to protect my family’s financial future?
“It’s actually a great time to review your need for life insurance and whether it’s enough, too little, or too much,” says Scott Bishop, a financial planner in Houston.
Remember that there are different types of life insurance on the market and those with “permanent” versions do not face this conundrum. These types offer different benefits depending on the policy – such as no expiry, containing investment growth options and having a cash value component that you can withdraw or borrow against – but are much more expensive.
Term policies appeal to those who prefer a simpler product with lower monthly premiums. A typical monthly cost for a 30-year-old man in good health buying a 20-year, $500,000 policy — the most common term and amount — ranges from $19 to $28 a month, according to quotes on aggregator site Term4Sale. com.
So if your “deadline” is approaching, here are options to consider:
LET IT OUT
A major rationale for life insurance is to protect your family early in your career when you don’t have much of yourself. But with enough assets, the equation changes.
“Ideally, they bought the term policy when they were young and probably had young children and a large mortgage,” says Kayla Johnson, a financial planner in Wilmington, North Carolina. “Now they’re close to retirement, the kids are out of the house and the mortgage is paid off. By that point, life insurance is hopefully a waste of money.”
With Natiello’s two children now out of college and him having some kind of universal coverage, the former Wall Street trader decided to let his policy lapse.
CONTINUE WITH YOUR CURRENT POLICY
You can choose to continue working on your existing policy, which is usually renewed every year. The advantage of this is that you won’t have to go through yet another series of health tests to get approved.
The downside: As your insurer takes on more risk, those previous level premiums will jump.
“They can extend their current policy, but the cost will likely be significantly higher [than purchasing a new policy] because the person doesn’t go through insurance,” says Elaine Tumiki, head of insurance product research for trade association LIMRA.
PURCHASE A NEW TERM POLICY
If your first term policy expires and you are still in excellent health, look for a new term policy.
Just be prepared for another signing process and don’t expect the same premiums. For a 50-year-old male in good health buying a 20-year policy with $500,000 in coverage, you’ll now be getting quotes for monthly premiums in the $70-$100 per month range, according to Term4Sale.com. (One way to keep a lid on those premiums: Get coverage for less than before.)
Also keep in mind that if you have health issues, it may be difficult to get a new policy at all.
CONVERTING TO DIFFERENT COVERAGE
Another option is to convert your term into permanent coverage, which some insurers allow, depending on the fine print of your current policy.
“The term conversion benefit often allows a policyholder to switch to a permanent policy, such as universal or whole life insurance, without having to take another medical exam,” said Amanda Kuhl, senior vice president and head of life insurance products at the New York insurer. Life.
Even better, the converted policy has a long-term care component designed to help with future expenses related to disability or chronic illness or nursing homes.
“Can you convert the term term life policy to a permanent policy?” asks Michelle Gessner, a financial planner in Houston. “If you can get long-term care benefits as a rider through another life policy, that may be the way to go.”
(Reporting by Chris Taylor; Editing by Lauren Young and Aurora Ellis; Follow us @ReutersMoney)