If you’re over 60 and have a term life policy, you might assume that it will be worthless at the end of its “term.” Well, it most certainly will be worthless… if you do nothing to prepare.
Many people don’t think about this until it’s too
late. Fact: 98% of term policies are
simply abandoned by the end of their term. When this happens, people are often—unknowingly—walking
away from tens of thousands, even hundreds of thousands, of dollars per million
dollars of death benefit.
I’m not talking here about “cash value.” Term policies don’t have any, so you can’t
trade the policy back to your insurance company for some amount of money.
Of course, if you’re still in your 60s and very
healthy, you might be able to obtain a new
term policy inexpensively. If so, that
may be your best bet.
But if your current age and/or health status make getting
a new policy difficult, here are some key alternatives to investigate before
you simply walk away from the old policy:
1. Converting your term policy into a new “permanent” policy.
Unlike a term policy, a permanent one
(“Whole Life,” “Universal Life”) is certain not to expire before you do! And, no
health exam is required in order to convert—useful if you’ve suffered a health
decline. Note: you must act before the
policy’s conversion deadline, which might occur earlier than the end of the
policy’s term. Check your dates.
Issue: Expect
sticker shock. Even if you’re healthy, the new policy’s premium can be 4 or 5
times the old one. To lower expenses you can convert, say, just
half the term policy and pay only half the new premium; but make sure this
leaves your beneficiaries with enough death benefit.
2. Converting your term policy into a long-term-care benefit plan.
This can help make
long-term care more affordable if you have limited financial resources but
aren’t eligible for Medicaid.
Issue: To qualify,
you must have an immediate need for
long-term care.
3. Selling your term policy (“Life Settlement”).
A third-party investor buys your
policy, gives you substantial cash today, continues to pay the premiums, and
collects all or most of the death benefit when you die. Life settlements are particularly effective
if you want cash now for medical or
other expenses.
Issue: You typically
need to be over 70 and in poor health. And
as with option #1, you must act before the deadline for converting your term
policy into a permanent one.
4. Obtaining a Term Extension.
This program can extend your current coverage
anywhere from 10 years to lifetime depending on the particulars; and can often
do so highly cost-effectively. The basic
idea: you use a relatively small amount of the future death benefit in order to
subsidize current premiums.
Term Extension can work well when other
options don’t, e.g. when you get sticker shock at the idea of converting from
“term to perm” (#1 above); when you don’t need immediate long-term care (#2);
or when you’re too young and healthy to sell your policy (#3).
Issue: As with #1,
with Term Extension you must act before the deadline for converting your term
policy into a permanent one.
In short: Your term policy may have great value
even though it has no “cash value” and is close to expiring. Don’t abandon it before you explore all your
options. The key is to plan ahead and be
aware of key aspects of the policy …like the conversion deadline.
Georges Holzberger is Head of Marketing for PolicyFlex LLC, a firm focused on innovative insurance solutions for retiring baby boomers. Georges has over 30 years of experience in financial services, including marketing, investor relations, and executive recruiting for Wall Street firms and investment managers. He was formerly a founding partner and Head of Marketing / Investor Relations at Plainfield Asset Management from 2005 to 2010. Based in Greenwich CT, Plainfield grew to $5 billion in assets under management. Georges previously spent 20 years in the search industry with Russell Reynolds Associates, Highland Search Group, and Sextant Search Partners.
The PolicyFlex Term Extension℠ program is managed in partnership with National Advisors Trust Company. For more information, visit www.policyflex.com.
The PolicyFlex Term Extension℠ program is managed in partnership with National Advisors Trust Company. For more information, visit www.policyflex.com.