Do You Know What Happens at the End of Your Level Life Insurance Period?
A typical example of someone purchasing term life insurance looks like this:a healthy individual took out a $500,000,twenty-year level term life insurance policy when they were thirty-five years old, and locked in a guaranteed premium payment of $30 per month for twenty years;now they are nearing the end of the level term period and the insurance company mails them a letter saying their premium is going to change to $489 per month for the next year. If the policy owner actually opens their mail, they typically say “this is crazy”, call the insurance company and then cancels the policy. If they don’t open the letter, the insurance company starts drafting $489 per month out of that individual checking account. When the individual finally realizes what’s going on three months later, the insurance representative on the other end of the phone in the policyholder services department tells them “sorry, that’s why we mailed you the letter, would you like to cancel your policy?” Most likely, the agent who sold them the policy has been out of the life insurance business for eighteen years, and never explained how a level term life insurance policy turns into an annual renewable term policy at more than ten times the price for the next year, or the policyholder just forgot this technicality when they purchased the policy.
Most people assume the policy will automatically cancel at the end of the level term period, but that is not the case. In most states, the term policy has to be guaranteed renewable until age 95, which means the insurance company will start drafting the increased premium out of the policyholder’s checking account unless the policy is canceled. If the policyholder is set up on annual direct premium payments through the mail, the policy will lapse after the grace period (which is typically 30 days), if the new higher premium is not paid. Planning ahead is key when it comes to getting the correct term length for you and your loved ones. Clients should take care to remember that they can always cancel a longer-term early, meaning if the client has a 30-year term and after 25 years no longer has a need for the death benefit protection, they can just cancel or stop paying premiums on the policy.
If you have a current term policy in place, it is in your best interest to reach out to a knowledgeable insurance agent who can help you both analyze your policy and get the right plan in place. Pacific Insurance Group, based out of Bellevue, WA, would love the opportunity to review your policy and help you understand what the renewable premiums will look like at the end of your level term. Please visit www.pacificinsurancegroup.comfor more information or call our Bellevue office at 425-246-4222.