Renewing Term Life Insurance: A Decision Guide

Term life insurance provides important financial protection for a specific period, typically 10, 20, or 30 years. As your policy approaches its expiration date, you’ll face an important decision: should you renew it? The answer depends on your current life circumstances, financial situation, and long-term goals.

Key Considerations When Deciding Whether to Renew

Your Current Financial Obligations

The primary purpose of life insurance is to protect your dependents from financial hardship if you die. Consider:

• Outstanding debts: Do you still have a mortgage, student loans, or other significant debts that would burden your family?
• Income replacement needs: Would your family still need to replace your income if you passed away?
• Dependents: Do you have children, a non-working spouse, or aging parents who rely on your financial support?

If your financial obligations have decreased significantly—perhaps your mortgage is paid off, your children are financially independent, or you’ve accumulated substantial savings—you might need less coverage or none at all.

Premium Increases

Term life insurance premiums typically increase significantly upon renewal because:

• You’re older, which increases mortality risk
• The renewal might not require a medical exam, meaning the insurer assumes more risk

Be prepared for your premiums to increase by 200-400% or more when renewing without a new medical exam. Before automatically renewing, compare rates from other providers to ensure you’re getting the best deal.

Your Health Status

If your health has deteriorated since you first purchased your policy, renewing your existing coverage (if your policy offers guaranteed renewability) might be advantageous, even at a higher premium. However, if you’re still in good health, shopping for a new policy might result in better rates than a standard renewal.

Changes in Insurance Needs

Your insurance needs evolve over time. Consider whether:

• Your coverage amount is still appropriate
• You need a longer or shorter term than what you originally purchased
• Other types of life insurance might better suit your current situation

Alternative Options

Rather than simply renewing, consider these alternatives:

• Purchase a new term policy: If you’re still healthy, this might be more cost-effective than renewing.
• Convert to permanent life insurance: Many term policies include a conversion option, allowing you to convert some or all of your coverage to permanent insurance without a medical exam.
• Ladder multiple policies: Consider smaller policies with different term lengths to match decreasing insurance needs over time.

When Renewal Makes Sense

Renewing your term life insurance typically makes sense when:

• You still have significant financial obligations
• Your health has declined, making new coverage expensive or difficult to obtain
• You need coverage for a short additional period (for example, just a few more years until retirement)
• Your policy has a conversion feature that you value

When to Consider Alternatives

Look beyond renewal when:

• Your financial situation has improved significantly
• You’re healthy and can qualify for competitive rates on a new policy
• Your insurance needs have changed dramatically
• You’re interested in permanent life insurance features

Steps to Take Before Your Policy Expires

1. Review your current financial situation: Analyze your assets, debts, income, and dependents’ needs.
2. Determine your insurance needs: Calculate how much coverage you actually need now.
3. Request renewal quotes: Ask your current insurer about renewal rates.
4. Shop around: Get quotes for new policies from multiple insurers.
5. Consider conversion options: Explore the terms of converting to permanent insurance if your policy offers this.
6. Consult a financial advisor: Get personalized advice based on your complete financial picture.

Conclusion

The decision to renew your term life insurance should be based on your current life circumstances rather than habit or convenience. By carefully evaluating your financial obligations, health status, premium costs, and available alternatives, you can make an informed choice that provides appropriate protection while optimizing your overall financial plan.

Remember that life insurance is just one component of a comprehensive financial strategy. Whatever you decide about renewal, use this opportunity to review your entire financial plan and make adjustments that align with your current goals and situation.