If your term life insurance policy is coming to an end, you may be tempted to buy a new policy to replace it. First, you have to ask yourself: Do I really need it?
When buying a term life insurance policy, our standard advice is to buy a policy with a term length that covers your longest financial obligation. This may be a mortgage, student loans, or until your children finish college.
But sometimes financial obligations change — you may have signed a new, longer mortgage, or welcomed a new child after you bought your life insurance policy. You may also have bought your policy before you knew your long-term financial obligations in order to lock in your life insurance rates.
Regardless of the reasoning, sometimes term life insurance policies end before your coverage needs do. If you have a coverage need, the general advice is to try to buy a life insurance policy. Even if your coverage need is small — less than $100,000, for example — there are life insurance companies who will write small policies and may even offer them without the need for a medical exam. (Check out our life insurance company reviews for more details on individual policy offerings or talk to one of our agents for more information.)
However, depending on the details of the policy and your health history, this new life insurance policy may be prohibitively expensive. Depending on how expensive this policy is and the nature of your coverage gap, it may make more sense to go without life insurance coverage. You could potentially take the money you would otherwise spend on life insurance and instead use it to pay down financial obligations faster, reducing your coverage gap.
You may also feel comfortable with your financial situation and decide that your nest egg or savings will be enough to take care of your family in the event that you die during your coverage gap. This is what we call being able to self-insure your debts, and a new life insurance policy would not be necessary.
No matter what you end up doing, you should always at least get some free life insurance quotes before you make your decision. These quotes will help you get an idea of how much it would cost for you to buy a new policy. Getting quotes does not lock you into buying a policy from a particular company, and you can get as many quotes as you want before you apply (or decide not to apply).
Some term life insurance policies also give you the option of converting into permanent policy for a more expensive premium. This can be even more expensive than buying a new term policy. While you should ask your life insurance company for more details about this option – especially to get the price – it doesn’t always make sense if you only want to cover a gap of a few years.