Ideally, you buy life insurance when your kids are young or you’ve purchased your first home, and you need the coverage only for about 20 years.
By the time your policy nears the end of its term, your kids are on their own, your house is mostly paid off, and you've accumulated enough money in retirement savings for your spouse to pay the bills if anything happened to you.
But these days, many people in their 50s are still supporting grown kids or they’ve refinanced their mortgage and locked in a new 30-year term. Their coverage is about to end, but they still need the security that term insurance provides.
Even though you can keep your policy beyond the initial term, the premiums jump enormously. A 37-year-old man in good health who buys a $500,000 20-year term policy could pay about $360 per year for 20 years. But in year 21 — at age 57 — the premiums jump to $6,900 or more depending on the company, says Byron Udell, CEO of AccuQuote.com.
Fortunately, you have a number of options for extending your coverage. Term insurance rates have decreased significantly over the past 20 years because of competition and longer life spans. So if you're in your fifties or early sixties and relatively healthy, premiums for a new policy can still be affordable.
If you have health issues, you may be able to convert your current term coverage to a permanent policy that remains in force for the rest of your life. A permanent policy also is a good idea if you’ll need life insurance for an unknown amount of time if, say, you are supporting a special-needs child.
If you’re relatively healthy, you may get a better deal by buying a new policy rather than converting your current term coverage. There are several kinds of permanent policies.
Guaranteed universal life provides the largest death benefit for the lowest level premiums. The policy doesn’t earn much cash value, but the premiums never change. A healthy 57-year-old man could pay about $7,000 per year for a $500,000 GUL policy, says David Eisenberg, of Quantum Insurance Services in Los Angeles.
Whole life has level premiums that tend to be at least double the annual cost of guaranteed universal life. For example, a 57-year-old man could pay about $17,800 per year for a whole life policy that starts out with a $500,000 death benefit, then never pay any more premiums after age 70, says Eisenberg. The death benefit increases, and the policy also builds cash value that you can use for any reason.
You can withdraw up to the amount you paid in premiums tax-free and borrow more through a policy loan that you never have to repay (it’s subtracted from the death benefit).
Many insurers now offer policies that combine life insurance and long-term-care coverage. These policies generally let you access a portion of your death benefit early if you need long-term care. Unlike stand-alone long-term-care policies, however, the premiums generally can’t increase.
Kimberly Lankford is a contributing editor to Kiplinger’s Personal Finance magazine. Send your questions and comments to firstname.lastname@example.org.