Life insurance is an essential part of planning for your family’s financial security. But if you don’t have enough, then your loved ones might not get the protection they need.
To ensure that doesn't happen, your life insurance policy needs to have the right coverage amount and your policy’s term length needs to be long enough. Sometimes, your needs change after you’ve purchased your policy — perhaps due to a change in your financial situation or because you’ve experienced a big life event. If you end up needing to extend your coverage, you have some options to increase your policy’s term length whether you own a private policy or through your employer.
The term length of your life insurance policy should match (or exceed) all of your financial obligations.
With every big life event, you should reevaluate your life insurance coverage to make sure it matches your needs.
If you need to extend your life insurance term length, you can convert your term policy to a permanent policy or purchase new coverage.
Do you need additional life insurance?
Whenever your financial obligations increase or a major life event happens, it’s a good idea to review your life insurance coverage to ensure that if you died, those financial obligations would be covered by your life insurance death benefit. If you get a policy term that doesn’t match your needs, you could risk your policy’s term ending too soon — and your loved ones not receiving the death benefit.
Some common reasons to increase life insurance coverage include:
Getting married or divorced
Having a child
Co-signing or taking out any loans
Buying or refinancing a house
For example, many people first buy life insurance when they buy a home in order to cover the mortgage payment if they were to die. But if you’re getting life insurance coverage to protect those mortgage payments, you want to make sure that your policy lasts as long as your mortgage or your loved ones could end up liable for those payments.
How much additional life insurance do you need?
To evaluate how much life insurance you need, add up all of your current expenses and debts — childcare, bills, a mortgage — along with your future obligations — your child’s college tuition, a spouse’s retirement — to determine exactly how long your coverage should last.
A 20-year mortgage would require a 20-year term policy to ensure that if you were to die before the loan was paid off, your spouse would get enough of a benefit to pay the balance due — even if you died the day after you took the policy out. Similarly, if you have kids that you plan on supporting for the next 18 years, you want a policy that lasts just as long so that their expenses are covered if you die and can no longer support them.
If you can, you also want to provide a cushion for any unexpected life events. For example, it’s very common to refinance a home or upgrade to a larger and more expensive home. Either scenario may mean that your original term policy no longer lasts long enough or has enough coverage to cover your entire debt, in which case you would want to add coverage or buy a new policy.
If your financial obligations and policy’s term don’t match up, or if there is no cushion to plan for the unexpected, you need to purchase more coverage so that you have a long enough term length.
How to add life insurance coverage
If you find that your coverage isn’t long enough, you’re not out of luck. You have two options to make sure your coverage is adequate: converting your term life insurance policy to a whole life insurance policy or purchasing a new life insurance policy altogether.
Converting your term coverage to whole coverage
You cannot increase the coverage amount of your term policy, but you may be able to increase the term length by converting the policy to a permanent policy. Many insurers offer term conversion riders, which can convert your term life insurance policy to a permanent life insurance policy at the end of its term. This permanent coverage would last the rest of your life, though the monthly premiums would be significantly higher than what you were paying for your term life insurance policy.
If you’re older or have had health problems since you first applied for life insurance, or if you have dependents that are still relying on you for coverage, converting to a permanent policy may be a way to ensure that you still have coverage. The term conversion option could be a good backup if you’re unable to purchase another affordable term policy.
If you decide to convert your policy, make sure to do so at least six months before your term length is set to expire to avoid a coverage gap. If on the off chance your insurer doesn’t offer a term conversion rider, then you want to make sure you have enough time to purchase a new policy.
Applying for a new life insurance policy
If you’re unable to convert your term life insurance policy (or the premiums are too costly to do so) applying for a new life insurance policy may be the best option to get the coverage you need. This policy could replace your original policy or it could be stacked on top of your current policy by using the ladder strategy. The ladder strategy is a way to save money on premiums by giving you maximum coverage now, and having that coverage taper off and expire as your financial obligations decrease.
The life insurance medical exam is only good for about six months after your first application, so you’ll have to go through the underwriting process again, but the whole process should be less stressful — this isn’t your first rodeo. There are some things to keep in mind if you’re shopping for life insurance a second time:
1. Don’t immediately cancel your policy
An important thing for second-time shoppers to do is hold on to your coverage. Your new policy isn’t in force until your policy’s effective date, which is when you’ve paid your premiums, signed your contract, and received confirmation from your insurer. Canceling your original policy before that happens could leave you without coverage and if you die, your beneficiaries won’t get the death benefit. Don’t cancel your old policy until your new one is in force.
2. Have your first policy’s details handy
When you apply for a new policy, the agent will ask you about current policies and amounts, and it’s important to have details about your current coverage ready when you apply to save time and avoid additional paperwork. Insurance is carefully regulated, and the underwriter will want to make sure you’re not overinsured.
3. Be prepared for higher premiums
If it’s been several years since you first applied for life insurance, the premiums you’re offered this time around will probably come back much higher than the first time you applied. Policy premiums increase based on age alone, about 8-10% every year you age, and changes in your health can have an additional impact on how much you pay. (An exception may be if your health has improved significantly or you quit smoking— in that case, your premiums could go actually down.)
That said, the good news is the process is exactly the same as if you were buying a term life policy for the first time—there are no extra hurdles to jump through.
You'll compare quotes, fill out an application and go through the underwriting process, and then have your new policy and peace of mind.
Buying additional life insurance when you have group life insurance
If you have group life insurance through your employer, you have two options to increase your coverage: you can buy supplemental insurance through your employer-sponsored group plan or you can purchase a private term policy.
Supplemental life insurance (also known as voluntary life insurance) is employer-offered coverage that you have to pay for. Similar to the life insurance coverage your employer offers at no additional cost, it can be a gamble because the policy doesn’t always go with you if you switch jobs.
Purchasing your own term life insurance policy is the best option for most people not only because it’s often cheaper than supplemental insurance through a group plan, but you can be certain that it will last as long as you need it because you keep your term coverage even if you leave your job.
The best option for most people is to shop for a private term life insurance policy to make up the difference between your coverage needs and the coverage offered by your employer. And remember, because employer-sponsored life insurance coverage isn’t permanent, you shouldn’t rely on it too heavily for all your financial protection needs.
If, after looking at your financial obligations, you find that you need more coverage, you have options to make sure your loved ones’ financial health isn’t at risk: you can convert your current term life insurance policy to a permanent policy or buy a new policy entirely. A financial advisor can help you figure out how much coverage you need and what type of coverage to buy.