For most of your clients, term life insurance is the simplest coverage option available. However, while a term insurance policy is easy to manage while active, what happens when it matures? In this article, we want to dive into the options that your clients can have when reaching the maturity date on their coverage. This way, they can be better informed and make the right decision for themselves and their families.
There are two ways that this kind of insurance can mature. First is when the policyholder dies. In that case, any named beneficiaries will receive the full death benefit. The second way a term insurance policy matures is when the term expires (i.e., 20 years). Before that happens, however, the policyholder has a few options. Let's break down what your clients should know regarding term life insurance policy maturity.
Renew the Policy
Typically, most individuals purchase term insurance to cover a specific period in their lives, such as when their kids are young. However, as they grow older, they may want to continue coverage into old age. No matter what, premiums will be higher after renewal because the owner of the policy is older. Even if your client is in good health, these payments will go up. That being said, it can sometimes be better to shop around for different plans to see if there are better options and rates available.
However, some insurers allow policyholders to renew their plans without a medical exam. If your client is worried about getting rated for insurance, this option might be best.
Convert the Policy
While term life insurance is easy, it has limited benefits. In some instances, your clients may prefer to switch to a whole or universal life insurance policy instead. For example, if they want to build cash value for retirement, they will have to convert their term insurance. Not all insurance companies allow for conversion, meaning that your client will have to let the original plan expire and buy new insurance. Even if a conversion is permitted, it will typically have specific qualifications, such as when it can occur. Again, a medical exam may or may not be necessary, so your clients will want to keep that in mind.
Return of Premium Payments
Usually, your clients will have to specify that they want a return of premium plan when buying it initially. In this case, once the policy matures, the insurer will return all or a portion of the premiums paid, minus a processing fee. Some clients may prefer this option since it's like putting money away in a savings account. However, it's crucial to note that, since it doesn't build interest or earn dividends, it's not a useful investment tool. Also, policyholders are not entitled to any returns if they cancel their coverage before it matures.
Finally, if your client doesn't want to continue paying for life insurance, he or she can let the plan terminate altogether. However, considering that life insurance is a smart decision no matter one's age, it's usually better to renew or convert the policy instead.
Contact Advisor's Resource Today
Term life insurance is a valuable tool for your clients, so they need to understand everything about it. Advisor's Resource can help you navigate through these options so that your clients make the right decision for their loved ones. Contact us to find out more.